Intermediate Accounting 6th Ed. by Spiceland - Ch.14, P14-18 Bradley-Link's December 31, 2011, balance sheet included the following items:
Long-Term Liabilities:
9.6% convertible bonds, callable at 101 beginning in 2012, $198 million due 2015 (net of unamortized discount of $2) (note 8)
10.4% registered bonds callable at 104 beginning in 2021, $ 49 million due 2025 (net of unamortized discount of $1) (note 8)
Shareholders' Equity:
Equity - stock warrants $ 4 million
Note 8: Bonds(in part)
The 9.6% bonds were issued in 1998 at 97.5 to yield 10%. Interest is paid semiannualy on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of the Company's no par common stock.The 10.4% bonds were issued in 2002 at 102 to yield 10%. Interest is paid semiannualy on June 30 and December 31. Each $1,000 bond was issued with 40 detachable stock warrants, each of which entitles the holder to purchase one share of the Company's no par common stock for $25, beginning 2012.
On January 3, 2012, when Bradley-Link's common stock had a market price of $32 per share, Bradley-Link called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. When the common stock prce reached an all-time high of $37 in December of 2012, 40% of the warrants were exercised.
Required:
1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 1998 and 2002.
2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2012 and the retirement and the remainder.
3. Assume Bradley-Link induced conversion by offering $150 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2012.
4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 45 shares for each bond rather than the 40 shares provided in the contract. Prepare the journal entry to record (book value method) the conersion of the 90% of the convertible bonds in January 2012.
5. Prepare the journal entry to record the exercise of the warrants in December 2012.