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ch17

ch17

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Published by Riya Shah

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Categories:Topics, Art & Design
Published by: Riya Shah on May 10, 2012
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Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e 
ILLUSTRATION 17-1
CONVERTIBLE SECURITIES
120
CONVERTIBLE BONDS
Issued ten, 8%, $1,000 par value bonds at 110. Each bond is convertibleinto 100 shares of $5 par value common.Entry at date of issue:Cash11,000Bonds Payable10,000Premium on Bonds Payable1,000Ten bonds were converted into 1,000 shares of $5 par value commonstock when the carrying amount of the bonds was $10,500.Entry at date of conversion (book value approach):Bonds Payable..10,000Premium on Bonds Payable500Common Stock..5,000Paid-in Capital in Excess of Par.5,500Ten bonds were converted into 1,000 shares of $5 per value commonstock when the carrying amount the bonds was $10,500 and themarket price of the stock was $12 a share.Entry at date of conversion (market value approach):Bonds Payable..10,000Premium on Bonds Payable...500Loss on Redemption of Bonds Payable…….1,500Common Stock..5,000Paid in Capital in Excess of Par...7,000
 
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e 
ILLUSTRATION 17-2
CONVERTIBLE SECURITIES
121
CONVERTIBLE PREFERRED STOCK
Issued 100 shares of $100 par value, 6%, convertible preferred stockat $110 per share. Each share of preferred stock is convertible into 10shares of $5 par value common stock.Entry at date of issue:Cash11,000Perferred Stock..10,000Premium on Preferred Stock1,000One hundred shares of preferred stock were converted into 1,000shares of $5 par value common stock.Entry at date of conversion:Preferred Stock..10,000Premium on Preferred Stock...1,000Common Stock..5,000Paid-in Capital in Excess of Par..6,000
 
Copyright © 1998 John Wiley & Sons, Inc. Kieso/Intermediate 9e 
ILLUSTRATION 17-3
STOCK WARRANTS ISSUED WITH DEBT SECURITIES
122
Assume 1,000 bonds with warrants attached were sold at par ($1,000).Each warrant allows the holder to buy one share of common stock.A.
Proportional method
: The bonds sold for 98 without the warrantssoon after they were issued and the warrants had a market valueof $25.Fair market value of bonds without warrants:($1,000,000
´
.98)$980,000Fair market value of warrants (1,000
´
$25)25,000Aggregate fair market value$1,005,000Allocated to bonds:
´
$1,000,000= $ 75,124Allocated to warrants:
´
$1,000,000 =24,876Total allocation$1,005,000B.
Incremental Method
: The market price of the bonds without thewarrants was $970,000, but the market value of the warrantswas not determinable.Lump sum receipt$1,000,000Allocated to the bonds970,000Balance allocated to the warrants$ 30,000$980,000$1,005,000$980,000$1,005,000

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