acct301bchap16computation

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a a. credit of $217,600 to Paid-in Capital in Excess of Par. b. credit of $192,000 to Paid-in Capital in Excess of Par. c. credit of $89,600 to Premium on Bonds Payable. d. loss of $12,800.

a $1,280,000 + ($280,000 × .32) - (12,800 × 30 × $30) = $217,600. Bonds payable (Dr) $1280,000 Premium bond payable (Dr) $89,600 (*Unamortized bond premium: $4000,000 in bonds - $ 280,000 unamortized $1280,000 exercised - $ 89,600 unamortized) Common stocks (Cr) $1152,000 ($1280,000 / $1000 x 30 x $30 par = $1152,000) Paid-in Capital (Cr) $217,600 (plug in)

On July 1, 2018, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $6,000 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $9,000 increase in paid-in capital in excess of par. c. a $18,000 increase in paid-in capital in excess of par. d. a $12,000 increase in paid-in capital in excess of par.

b $150,000 - (3,000 × $45) - $6,000 = $9,000. Bonds payable (Dr) $150,000 Discount on bonds payable (Cr) $6000 Common stocks (Cr) $135,000 (3000 x $45) APIC-common (Cr) (plug) $9000

49. Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $130,000 b. $124,000 c. $144,000 d. $120,000

b. $124,000 Bonds payable (Dr) $200,000 Premium on bonds payable (Dr) $4,000 Common stocks (Cr) $80,0000 APIC-Common (Cr - plug) $124,000

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. 47. What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? a. $46,800. b. $43,200. c. $23,400. d. $44,400.

b. $43,200. discount on bonds payable ($6000,000 x 0.039) / 117 (Oct 2010 - Oct 2020 is 12x2 - semiannual x 10 years -3 months from July 1 to Oct 1) = $2000 / month Already amortized: $2000 x 9 (july 1 2010 - april 1 2011) = $18,000 Total unamortized: $ 6000,000 x 0.039 - $18,000 = $216,000 the unamortized amount of the bonds converted: $43,200 $6,000,000 - $216,000 $1,200,000 - $43,200

On December 1, 2018, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $774,560. b. $782,800. c. $800,000. d. $824,000.

b. $782,800. Bonds issued with warrant: 800 x $1000 x 1.03 = $824,000 Bonds payable $824,000 x 95% = $782,800

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. What amount should be allocated to the warrants? a. $80,000 b. $82,000 c. $96,000 d. $100,000

b. $82,000 Bonds issued with warrant: $820,000 % warrant: $80000 / ($80,000 + $720,000) =0.1 Warrants: $820,000 x 0.1 = $82,000

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. 48. What was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

b. Above 9% effective rate = market rate Bonds issued at a discount => market rate > coupon rate

On July 1, 2018, Chen Company issued for $9,450,000 a total of 90,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $9,225,000. The market price of the rights on July 1, 2018, was $2.50 per right. On October 31, 2018, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 36,000 rights were exercised. As a result of the exercise of the 36,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 540,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock180,000 b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000 c. Cash 540,000 Paid-in Capital—Stock Warrants 225,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 405,000 d. Cash 540,000 Paid-in Capital—Stock Warrants 135,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 315,000

b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000 Paid-in Capital in Excess of Par - Common Stock: 36,000 rights x $2.5 + 36,000 rights ($15-$10) = $270,000

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. 56. On May 1, 2018, Payne should record the bonds with a a. discount of $60,000. b. discount of $16,800. c. discount of $15,000. d. premium of $45,000

b. discount of $16,800. Bonds issued $1,500,000 at 1.00. Sell without warrants: $1,500,000 x 1.03 x 0.96 = $1,483,200 => Discount $1,500,000 - $1,483,200 = $16,800

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2018, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2018 as paid-in capital from stock warrants? a. $73,600 b. $85,200 c. $104,000 d. $100,000

c. $104,000 Bonds issued with warrant: $2,000,000 x 1.04 = $2,080,000 Warrants: $2,080,000 x 5% = $104,000

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2017? a. $129,000. b. $135,000. c. $141,000. d. $270,000.

c. $141,000. Interest payable = bonds interest ($6000,000 x 0.09) x 3/12 + discount on bonds payable ($6000,000 x 0.039) / 117 (Oct 2010 - Oct 2020 is 12x2 - semiannual x 10 years -3 months from July 1 to Oct 1) x 3 = $135,000 + $6000 = $ 141,000

During 2018, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $20,000 c. $20,800 d. $19,760

c. $20,800 stock warrants should be accounted for as part of S.E Bonds issued with warrants: $1000 x 500 x 1.04 = $520,000 Warrants: $520,000 x 0.04 =$20,800

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. 55. On May 1, 2018, Payne should credit Paid-in Capital from Stock Warrants for a. $57,600. b. $60,000. c. $61,800. d. $105,000.

c. $61,800. Bonds issued with warrant: $1,500,000 x 103 = $1545,000 Paid-in Capital from Stock Warrants: $1545,000 x 0.04 = $ 61,800

On April 7, 2018, Kegin Corporation sold a $6,000,000, twenty-year, 8 percent bond issue for $6,360,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $6,000,000 Premium on Bonds Payable 232,800 Paid-in Capital—Stock Warrants 127,200 b. Bonds Payable $6,000,000 Premium on Bonds Payable 48,000 Paid-in Capital—Stock Warrants 252,000 c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400 d. Bonds Payable $6,000,000 Premiums on Bonds Payable 360,000

c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400 Bonds issued with warrant: $6,360,000 % warrant: ($21 x 2) / ($1008 + $21*2) = 0.04 Paid- in capital - stock warrant: $6,360,000 x 0.04 = $254,400

In 2017, Eklund, Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,530,000. b. $1,170,000. c. $2,250,000. d. $2,520,000.

d. $2,520,000. Bonds payable (Cr) 90,000 x $100 = 9,000,000 Premium on bonds payable (Cr) 9,000,000 x 0.03 = $ 270,000 Common stocks (Dr) 6750,000 APIC-Preferred stock (Dr) $2520,000

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2018, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $ 330,000. b. $ 160,000. c. $1,440,000. d. $ 720,000.

($2,400,000 ÷ $1,000) × 40 × $20 = $1,920,000 (common stock) ($2,400,000 ÷ $16,000,000) × $1,000,000 = $150,000 (unamortized discount) $2,400,000 - $1,920,000 - $150,000 = $330,000. Bonds payable (Dr) $2,400,000 Discount on Bonds payable (Cr) $150,000 ($16,000,000 - $1,000,000 unamortized $2,400,000 - $150,000 unamortized discount) Common stocks (Cr) $1,920,000 ($2,400,000 / $1000 x 40 share x $20 par = $1,920,000) APIC - Common (plug) (Cr) $330,000