Issuance of Bonds, Convertible bonds from P.S. to C.S.

What are the steps to recording a journal entry to record the issuance of a bond?

Calculate Cash: Issue amount multiplied by percentage its issued at (99,101) Calculate Premium/Discount: Subtract cash from from issue amount (if the cash is higher than issue amount its a premium, if its less than cash its a discount) Record Entry: (discount D,D,C),(Premium D,C,C) (bonds payable is always a credit and it the issue amount)

What calculations are needed in order to convert preferred stock into common stock?

Calculate cash: conversion amount multiplied by original price per P.S. share Calculate Preferred Stock: conversion amount multiplied by conversion par value price Calculate PIC in excess of P.S: subtract preferred stock from cash amount Calculate Common Stock: Original issue amount multiplied by par value common stock price. Calculate PIC in excess of C.S: add Preferred stock and PIC P.S. then subtract Common stock amount from it

What are the calculations needed for journalizing the conversion of Bonds to Common Stock using the book value approach?

Calculate liability: Oustanding # of bonds multiplied by their dollar amount (example:outstanding 3,000, $1,000 bonds) Calculate number of shares: Outstanding bonds multiplied by number of shares Calculate total par value: total shares multiplied by par value of common stock.

How is a conversion from Bonds Payable to Common stock recorded for the Book value approach?

D:Bonds Payable C:Discount Bonds Payable C: Common Stock C: PIC in excess of C.S.

Miller Corporation issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Record the entry at date of issuance.

D:Cash (4,000,000x.99) 3,960,000 D:Discount on B.P. 40,000 C:Bonds Payable 4,000,000

What is the journal entry to record the conversion of preferred stock to common stock?

D:Preferred Stock D: Paid in Capital in excess of P.S. C: Common Stock C: Paid in Capital in excess of C.S.

When the issuance of a bond involves a premium what dies the journal entry include?

Debit to Cash Credit to Premium B.P. Credit to Bonds Payable

When the issuance of the bond involves a discount what does the journal entry include?

Debit to Cash Debit to Discounts B.P. Credit to Bonds Payable

Companies use what method when converting bonds?

book value method

Foster Corporation issues 2,000 shares of $12 par value common stock upon conversion of 1,000 shares of $40 par value preferred stock. The preferred stock was originally issued at $60 per share. Record the conversion of the preferred stock.

cash 1000x60=60,000 TPV 1000x40=40000 TPV C.S. 2,000x12=24,000 D:Preferred Stock 40,000 D:PIC P.S. 20,000 C:Common Stock 24,000 C:PIC C.S. 36,000

*Foster Corporation issues 2,000 shares of $12 par value common stock upon conversion of 1,000 shares of $40 par value preferred stock. The preferred stock was originally $60 per share. Record the conversion of the preferred stock.

cash 1000x60=60,000 TPV P.S. 1,000x40=40,000 TPV C.S. 2,000x12=25,000 D: Preferred Stock 40,000 D: PIC P.S. 20,000 C: Common Stock 24,000 C: PIC C.S. 36,000

*Foster Inc. Issued $5,000,000 par value 7% convertible bonds at 101 for cash. If the bonds had not included the conversion feature, they would have sold for 100. Prepare the journal entry to record issuance of the bond.

cash 5,000,000x1.01=5,050,000 premium 5,000,000-5,050,000=50,000 liability 5,000,000 D:Cash 5,050,000 C:Premium Bonds Payable 50,000 C:Bonds Payable 5,000,000

*Foster Inc. Issued $6,000,000 par value 7% conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

cash 6,000,000x.99=5,940,000 discount 6,000,000-5,940,000=60,000 liability 6,000,000 D:Cash 5,940,000 D:Discount B.P. 60,000 C:Bonds Payable 6,000,000

*Foster Inc. has outstanding 3,000 $1,000 bonds, each convertible into 50 shares of $18 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $20,000 and the market price of the stock is $25 per share. Record the conversion using the book value approach.

liability 3,000x1,000=3,000,000 shares 3,000x50=150,000 TPV 150,000x18=2,700,000 3,000,000-2,720,000=280,000 D:Bonds Payable 3,000,000 C:Discount Bonds Payable 20,000 C:Common Stock 2,700,000 C:PIC excess C.S. 280,000

Moore Corporation has outstanding 2,000, $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $30,000 and the market price of the stock is $21 per share. Prepare the entry to record the conversion of the bonds.

2,000x1,000=2,000,000 2,000x50x10=1,000,000 D:Bonds Payable 2,000,000 C: Discount on B.P 30,000 C:Common Stock 1,000,000 C:PIC excess C.S. 970,000

*Vargo Company has bonds payable outstanding in the amount of $500,000, and the premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted int preferred stock.

B.P. 500,000 premium 7,500 bonds 500,000/1,000=500 shares 500x20=10,000 TPV 10,000x50=500,000 D:Bonds Payable 500,000 D:Premium 7,500 C:Preferred Stock 500,000 C:PIC P.S. 7,500