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5 Cards in this Set
- Front
- Back
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When bonds are converted, what are the two things you need to do?
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Remove the bonds and Issue stock.
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Gabal Company has bonds payable outstanding in the amount of $400,000 and Premium on Bonds Payable account has a balance of $6,000. Each $1,000 bond is convertible into 20 shares of preffered stock of par value of $50 per share. All baonds are converted into preferred stock.
Assuming that the book value method was used, what entry would be made? |
400 x 20 shares = 8,000
8,000x 50 par = 400,000 Book value = 406,000 entry would be Bonds Payable 400,000 Premium on B/p 6,000 P/S (shares) 400,000 Add. PIC for P/S 6,000 |
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When preferred stock is converted, what do you do?
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Remove Preferred Stock and Issue Common Stock.
Example: P/S(500shx100) 50,000 Add. PIC P/S(500x15)17,000 C/S(2500x1) 2500 Add PIC CS 55,000 |
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On May 1, 2010, Barkely Company issued 3,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the market value of the warrants cannot be determined.
Assume the same facts are part (a), except that the warrants had a fair value of $20. Prepare the entries. |
3,000 bonds x 1,000 f/v per bonds = 3,000,000 total f/v issued.
Times that by 1.02 and you get 3,060,000 as proceeds. Now using the proprotional method you take the MKT Value of the bonds MKT value of bonds = 3,000,000 times .98 which gives you 2,940,000. Now to get the mkt value of the warrant take 3,000,000 x 20$. You get 3,060,000. Now set up the table. M.V. Rotation x Lump Sump MKV bonus 2940/3000 x 3,060,000 = 2,998,800 as allocation for mkv bonus. MKV warrant is 60/3000 x 3,060,000= 61,200 Make sure 2,998,800 + 61,200 = 3,060,000 Now do the entries 2010 May 1 Cash 2,998,800 Discount b/p 1,200 B/P 3,000,000 Cash 61,200 PIC - STK Warrant 61,200 |
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Here is an example of how to exercise a warrant.
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2009
Mar 1 PIC-Stk Warr. 67,000 Cash(2000x3/6000x40) 240,000 C/S(6000shx5par) 30,000 Add PIC CS 277,000 |
