Purchase Solution

Convertible bonds and stock warrants

Not what you're looking for?

Ask Custom Question

For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.

1) On August 1, 2007, Ryan Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.

2) Garnett, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.

3) Lopez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.

Purchase this Solution

Solution Summary

The solution explains journal entries relating to convertible bonds and stock warrants.

Solution Preview

1. Bonds Payable Dr ...................... 8,000,000
Premium on Bonds Payable Dr........... 700,000
Common Stock (320,000X20)Cr..................6,400,000
Paid-in Capital in Excess of Par Cr 2,300,000

When bonds are converted, they are done at the book value. The carrying value of the bonds is taken. The capital stock is the number of shares issued and the difference is ...

Purchase this Solution


Free BrainMass Quizzes
Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Introduction to Finance

This quiz test introductory finance topics.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.