Issuance and Conversion of Bonds
For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.
1. Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been
convertible, the company's investment banker estimates they would have been sold at 95. Expenses
of issuing the bonds were $70,000.
2. Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase
warrant was issued with each $100 par value bond. At the time of issuance, the warrants were
selling for $4.
3. Sepracor, Inc. called its convertible debt in 2007. Assume the following related to the transaction:
The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common
stock on July 1, 2007. On July 1, there was $55,000 of unamortized discount applicable to the
bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all
the bonds. The company records the conversion using the book value method.
Issuance and conversions of bonds entries for grands are examined.