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Chapter 16: Q9IFRS (page 896)

Question: Archer Company issued \(4,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of the debt without the conversion feature is \)3,800,000. Prepare the journal entry to record the issuance of the convertible bonds.

Short Answer

Expert verified

Answer

Cash will be debited by $3,960,000 and bonds payable will be credited $3,800,000 and premium on bonds payable is $160,000.

Step by step solution

01

Explanation of premium on bonds payable-

The amount over the face value of bonds that are issued are known as premium on bonds payable.

02

Journals

Date

Accounts & Explanations

Debit

Credit

Cash ($4,000,000*99%)

$3,960,000

Bonds Payable

$3,800,000

Premium on bonds payable

$160,000

Being issuance of the convertible bonds recorded

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Most popular questions from this chapter

(EPS with Complex Capital Structure) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgerald’s financial statements. Below is selected financial information for the fiscal year ended June 30, 2017.

FITZGERALD PHARMACEUTICAL INDUSTRIES

SELECTED BALANCE SHEET

INFORMATION

JUNE 30, 2017

Long-term debt

Notes payable, 10% \( 1,000,000

8% convertible bonds payable 5,000,000

10% bonds payable 6,000,000

Total long-term debt \)12,000,000

Shareholders’ equity

Preferred stock, 6% cumulative, \(50 par value,

100,000 shares authorized, 25,000 shares issued

and outstanding \) 1,250,000

Common stock, \(1 par, 10,000,000 shares authorized,

1,000,000 shares issued and outstanding 1,000,000

Additional paid-in capital 4,000,000

Retained earnings 6,000,000

Total shareholders’ equity \)12,250,000

The following transactions have also occurred at Fitzgerald.

1. Options were granted on July 1, 2016, to purchase 200,000 shares at \(15 per share. Although no options were exercised

during fiscal year 2017, the average price per common share during fiscal year 2017 was \)20 per share.

2. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at 50 shares per \(1,000

bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016.

3. The preferred stock was issued in 2016.

4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017.

5. The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year.

6. Net income for fiscal year 2017 was \)1,500,000, and the average income tax rate is 40%.

Instructions

For the fiscal year ended June 30, 2017, calculate the following for Fitzgerald Pharmaceutical Industries.

(a) Basic earnings per share.

(b) Diluted earnings per share.

EXCEL (Stock-Option Plan) Berg Company adopted a stock-option plan on November 30, 2016, that provided that 70,000 shares of \(5 par value stock be designated as available for the granting of options to officers of the corporation at a price of \)9 a share. The market price was \(12 a share on November 30, 2017.

On January 2, 2017, options to purchase 28,000 shares were granted to president Tom Winter—15,000 for services to be rendered in 2017 and 13,000 for services to be rendered in 2018. Also on that date, options to purchase 14,000 shares were granted to vice president Michelle Bennett—7,000 for services to be rendered in 2017 and 7,000 for services to be rendered in 2018. The market price of the stock was \)14 a share on January 2, 2017. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was \(4 per option.

In 2018, neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market price of the stock was \)8 a share on December 31, 2018, when the options for 2017 services lapsed.

On December 31, 2019, both president Winter and vice president Bennett exercised their options for 13,000 and 7,000 shares, respectively, when the market price was $16 a share.

Instructions

Prepare the necessary journal entries in 2016 when the stock-option plan was adopted, in 2017 when options were granted, in 2018 when options lapsed, and in 2019 when options were exercised.

On January 1, 2017, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share ofBarwood’s \(5 par value common stock at \)50 per share at any time during the next 5 years. The market price of the stock is \(65 per share on the date of grant. The fair value of the options at the grant date is \)150,000. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2017, and December 31, 2017 and 2018.

Question: Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value ordinary shares. The bonds are converted on December 31, 2017. The bonds payable has a carrying value of \(1,950,000 and conversion equity of \)20,000. Record the conversion using the book value method.

(L04) (EPS: Simple Capital Structure) Ace Company had 200,000 shares of common stock outstanding on December 31, 2018. During the year 2019, the company issued 8,000 shares on May 1 and retired 14,000 shares on October 31. For the year 2019, Ace Company reported net income of \(249,690 after a loss from discontinued operations of \)40,600 (net of tax).

Instructions

What earnings per share data should be reported at the bottom of its income statement?
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