On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the rion ontl

On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the rion ontl

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 10QE

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On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
On July 1, 2023, Tien Limited called its 9% convertible bonds for conversion. The $10 million of par value bonds were converted into 1 million common shares. On July 1, there was $75,000 of unamortized discount applicable to the bonds, and the company paid an additional $65,000 to the bondholders to induce conversion of all the bonds. At the time of conversion, the balance in the account Contributed Surplus—Conversion Rights was $270,000, and the bond’s fair value (ignoring the conversion feature) was $9,955,000. The company records conversion using the book value method. Prepare the journal entries if Tien prepares its financial statements using IFRS and if it uses ASPE. Can someone please explain what the difference is between IFRS and ASPE and how they got the number in the journal entries, thanks! Please donot provide solution in image format provide solution in step by step format and fast solution
On September 1, 2020, Sandhill Corp. sold at 105 (plus accrued interest) 5,190 of its $1,000 face value, 10–year, 10% non–convertible bonds with detachable stock warrants. Each bond carried 2 detachable warrants; each warrant was for one common share at a specified option price of $12 per share. Shortly after issuance, the warrants were selling for $6 each. Assume that no fair value is available for the bonds. Interest is payable on December 1 and June 1. Sandhill Corp. prepares its financial statements in accordance with ASPE. Prepare in general journal format the entry to record the issuance of the bonds under both options available under ASPE.
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McWherter Instruments sold $400 million of 8% bonds, dated January 1, on January 1, 2021. The bonds mature on December 31, 2040 (20 years). For bonds of similar risk and maturity, the market yield was 10%. Interest is paid semiannually on June 30 and December 31. Blanton Technologies, Inc., purchased $400,000 of the bonds as a long-term investment. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds issued on January 1, 2021. 2. Prepare the journal entries to record (a) their issuance by McWherter and (b) Blanton's investment on January 1, 2021. 3. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on June 30, 2021 (at the effective rate). 4. Prepare the journal entries by (a) McWherter and (b) Blanton to record interest on December 31, 2021 (at the effective rate). Complete this question by entering your answers in the tabs below. Required…
On April 1, 2023, Sheridan Corp. sold 11,000 of its $900 face value, 15-year, 10% bonds at 98. Interest payment dates are April 1 and October 1. The company follows ASPE and uses the straight-line method of bond discount amortization. On March 1, 2024, Sheridan extinguished 2,750 of the bonds by issuing 80,000 shares. At this time, the accrued interest was paid in cash to the bondholders whose bonds were being extinguished. In a separate transaction on March 1, 2024, 120, 000 of the company's shares sold for $32 per share .a.Prepare Sheridan's journal entry to record the issuance of the bonds on April 1, 2023 DR.cash 9702000 Cr.bonds payable 9702000 b.Prepare Sheridan's journal entry to record the payment of the semi-annual interest on October 1, 2023. Dr. interest expense5016000 Cr.cash 495000 Cr.bonds payable 6600 c.Prepare Sheridan's journal entry to record the accrual of the interest expense on December 31, 2023. Dr. interest expense 250800 Cr,interest payable 247500 Cr.bonds…
On January 1, 2019, COT Co. issued P1,500,000, 12% convertible bonds due after 4 years. The bonds were sold for P1,595,082 and are convertible into P10 par ordinary shares at a conversion price of P25 per share. On December 31, 2020, COT Co. in an effort to induce conversion of the bonds into ordinary share, reduced the conversion price to P20 per share for bondholders that converted within 40 days. On this date, the fair value of the bonds is P1,600,000 and the bonds have a carrying amount of P1,552,049. All the bond holders accepted the offer on December 31, 2020. On the date of conversion, the fair value of the COT Co.'s ordinary share is P30 per share. How much is the amount to be recognized in profit or loss as a result inducedc onversion?
On January 1, 2025, Ariana Corporation issued its 8%, 5-year convertible debtinstrument with a face amount of P8,000,000 for P7,700,000. Interest is payableevery December 31 each year. The debt instrument is convertible into 50,000ordinary shares with a par value of P100. When the debt instrument were issued, thebonds without the conversion option were sold for P7,393,312 yielding 10%. OnDecember 31, 2027, P6,400,000 of the convertible debt instrument were converted.How much is the gain or loss on conversion taken to profit or loss for the year 2027?
On January 1, 2024, Fowl Products issued $80 million of 6%, 10-year convertible bonds at a net price of $81.6 million. Fowl recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method. On June 1, 2026, Fowl notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2026. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Fowl paid the semiannual interest and issued the requisite number of shares for the bonds being converted. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
On April 1, 2020, CASHEW Company sold 12,000 of its ₱1,000 11%, 5-year face value bonds at 96. The bonds are dated April 1, 2020 and interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 31, 2021, CASHEW took advantage of favorable prices of its shares to extinguish all of the bonds by issuing 800,000 shares of its ₱P10 par value ordinary shares. At this time, accrued interest was paid in cash. The company’s shares was selling for ₱30 per share on March 1, 2021. How much is the increase in share premium due to the conversion of CASHEW’s bonds?
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