Answers
Requirement 1:
a. Journal entry for the bonds issued in 2008
| Date | Account Title and Explanation | Debit (in million) | Credit (in million) |
| 2008 | Cash ($200 million × 97.5%) | $195.0 | |
| Discount on Bonds Payable ($200 million − $195 million) | $5.0 | ||
| 9.6% Convertible Bonds Payable ($198 million + $2 million) | $200.0 | ||
| To record 9.6% convertible bonds issued |
b. Journal entry for the bonds issued in 2012
| 2012 | Cash ($50 million × 102%) | $51.0 | |
| Discount on Bonds Payable ($50 million + 4 million − $51 million) | $3.0 | ||
| 10.4% Convertible Bonds Payable ($49 million + $1 million) | $50.0 | ||
| Equity Stock Warrants | $4.0 | ||
| To record 10.4% bonds with warrants issued |
Requirement 2:
a. Record the following journal entry for the conversion of 90% of convertible bonds
| January | 9.6% Convertible Bonds Payable ($200 million × 90%) | $180.0 | |
| 2022 | Discount on Bonds Payable ($2 million × 90%) | $1.8 | |
| Common Stock ($180 million − $1.8 million) | $178.2 | ||
| To record conversion of 90% of 9.6% convertible bonds |
b. Record the following journal entry for the retirement of remainder bonds
| January | 9.6% Convertible Bonds Payable ($200 million × 10%) | $20.0 | |
| 2022 | Loss on Early Retirement of Bonds Payable ($20.20 + $0.20 − $20) | $0.4 | |
| Discount on Bonds Payable ($2 million × 10%) | $0.2 | ||
| Cash (200 million − $180 million) × 101% | $20.2 | ||
| To record early retirement of remainder bonds |
Requirement 3: Record the following journal entry for the conversion of 90% of the convertible bonds
| January | 9.6% Convertible Bonds Payable ($200 million × 90%) | $180.0 | |
| 2022 | Conversion Expense (200,000 bonds × $150 × 90%) | $27.0 | |
| Discount on Bonds Payable ($2 million × 90%) | $1.8 | ||
| Common Stock ($180 + $27 − $1.8 − $27) | $178.2 | ||
| Cash (200,000 bonds × $150 × 90%) | $27.0 | ||
| To record conversion of 9.6% convertible bonds |
Requirement 4: Record the following journal entry for the conversion of 90% of the convertible bonds
| January | 9.6% Convertible Bonds Payable ($200 million × 90%) | $180.0 | |
| 2022 | Conversion Expense (200,000 bonds × (45− 40) shares × $32 × 90%) | $28.8 | |
| Discount on Bonds Payable ($2 million × 90%) | $1.8 | ||
| Common Stock ($180 + $28.8 − $1.8) | $207.0 | ||
| To record conversion 9.6% convertible bonds |
Requirement 5: Record the following journal entry for the exercise of warrants
| December | Cash (50,000 bonds × 40 warrants per bond × 40% × $25) | $20.0 | |
| 2022 | Equity Stock Warrants ($4 million × 40%) | $1.6 | |
| Common Stock | $21.6 | ||
| To record equity stock warrants exercised |
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