Problem
Long-Term Liabilities ($ in millions) 7.0% convertible bonds, callable at 104 beginning in 2017, due 2020 (net of unamortized discount of $4) [note 8] $196 11.0% registered bonds callable at 107 beginning in 2026, due 2030 (net of unamortized discount of $2) [note 8] 53 Shareholders' Equity 5 Equity-stock warrants Note 8: Bonds (in part) The 7.0% bonds were issued in 2003 at 96.5 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of the Company's no par common stock. The 11.0% bonds were issued in 2007 at 105 to yield 10%. Interest is paid semiannually 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 $35, beginning 2017. On January 3, 2017, when Bradley-Link's common stock had a market price of $42 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 price reached an all-time high of $47 in December of 2017, 40% of the warrants were exercised.
1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2003 and 2007.
2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2017 and the retirement of 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 2017.
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 conversion of 90% of the convertible bonds in January 2017.
5. Prepare the journal entry to record the exercise of the warrants in December 2017.