1Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.
2.
Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.
3.
Sepracor, Inc. called its convertible debt in 2007. Assume the following related to the transaction: The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2007. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.
Cash ($20,000,000 X .99)……………………………………………………… 19,800,000
Discount on Bonds Payable…………………………………………. 200,000
Bonds Payable……………………………………………………. 20,000,000
Unamortized Bond Issue Costs……………………………………. 70,000
Cash………………………………………………………………….. 70,000
- Cash 19,600,000
Discount on Bonds Payable…………………………………………. 1,200,000
Bonds Payable……………………………………………………. 20,000,000
Paid-in Capital—Stock Warrants……………………….. 800,000
Value of bonds
plus warrants
($20,000,000 X .98) $19,600,000
Value of warrants
(200,000 X $4) 800,000
Value of bonds $18,800,000
- Debt Conversion Expense…………………………………………… 75,000
Bonds Payable……………………………………………………………. 10,000,000
Discount on Bonds Payable…………………………………. 55,000
Common Stock…………………………………………………… 1,000,000
Paid-in Capital in Excess of Par………………………….. 8,945,000*
Cash………………………………………………………………….. 75,000
*[($10,000,000 – $55,000) – $1,000,000]
