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On January 1, 2016, Gless Textiles issued $11 million of 8%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Glessâs no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 20% of the issue as an investment.
| Required: | |
| 1. | Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the issuance of the bonds by Gless. B. Record the purchase of the bond investment by Century. Note: Enter debits before credits. No journal entry required Accounts receivable Allowance for uncollectible accounts Bond investment Bonds payable Building Cash Common stock Conversion expense Convertible bonds payable Debt issue costs Debt issue expense Discount on bond investment Discount on bonds payable Discount on notes payable Equipment Equityâconversion option Equityâstock warrants Fair value adjustment Gain on disposition of assets Gain on early extinguishment Gain on troubled debt restructuring Interest expense Interest payable Interest receivable Interest revenue Inventory Investment in common stock Investment in convertible bonds Investment in stock warrants Land Loss on early extinguishment Loss on sale of investment Machinery Notes payable Notes receivable Premium on bond investment Premium on bonds payable Retained earnings Unrealized holding gain Unrealized holding loss 2. Prepare the journal entries for the June 30, 2020, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the interest payment by Gless. B. Record the receipt of interest by Century 3. On July 1, 2021, when Glessâs common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the entry for Gless regarding the conversion of the bonds. B. Record the entry for Century regarding the conversion of the bonds. |
On January 1, 2016, Gless Textiles issued $11 million of 8%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Glessâs no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 20% of the issue as an investment.
| Required: | |
| 1. | Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the issuance of the bonds by Gless. B. Record the purchase of the bond investment by Century. Note: Enter debits before credits. No journal entry required Accounts receivable Allowance for uncollectible accounts Bond investment Bonds payable Building Cash Common stock Conversion expense Convertible bonds payable Debt issue costs Debt issue expense Discount on bond investment Discount on bonds payable Discount on notes payable Equipment Equityâconversion option Equityâstock warrants Fair value adjustment Gain on disposition of assets Gain on early extinguishment Gain on troubled debt restructuring Interest expense Interest payable Interest receivable Interest revenue Inventory Investment in common stock Investment in convertible bonds Investment in stock warrants Land Loss on early extinguishment Loss on sale of investment Machinery Notes payable Notes receivable Premium on bond investment Premium on bonds payable Retained earnings Unrealized holding gain Unrealized holding loss 2. Prepare the journal entries for the June 30, 2020, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the interest payment by Gless. B. Record the receipt of interest by Century 3. On July 1, 2021, when Glessâs common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the entry for Gless regarding the conversion of the bonds. B. Record the entry for Century regarding the conversion of the bonds. |
Spreadsheet and Statement of Cash Flows
The following information was taken from Lamberson Company's accounting records:
| Account Balances | ||
| Account Titles | January 1, 2016 | December 31, 2016 |
| Debits | ||
|---|---|---|
| Cash | $ 1,400 | $ 2,400 |
| Accounts Receivable (net) | 2,800 | 2,690 |
| Marketable Securities (at cost) | 1,700 | 3,000 |
| Allowance for Change in Value | 500 | 800 |
| Inventories | 8,100 | 7,910 |
| Prepaid Items | 1,300 | 1,710 |
| Investments (long-term) | 7,000 | 5,400 |
| Land | 15,000 | 15,000 |
| Buildings and Equipment | 32,000 | 46,200 |
| Discount on Bonds Payable | â | 290 |
| $69,800 | $85,400 | |
| Credits | ||
| Accumulated Depreciation | $16,000 | $16,400 |
| Accounts Payable | 3,800 | 4,150 |
| Income Taxes Payable | 2,400 | 2,504 |
| Wages Payable | 1,100 | 650 |
| Interest Payable | â | 400 |
| Note Payable (long-term) | 3,500 | â |
| 12% Bonds Payable | â | 10,000 |
| Deferred Taxes Payable | 800 | 1,196 |
| Convertible Preferred Stock, $100 par | 9,000 | â |
| Common Stock, $10 par | 14,000 | 21,500 |
| Additional Paid-in Capital | 8,700 | 13,700 |
| Unrealized Increase in Value of Marketable Securities | 500 | 800 |
| Retained Earnings | 10,000 | 14,100 |
| $69,800 | $85,400 | |
Additional information for the year:
| Sales | $ 39,930 | |
| Cost of goods sold | (19,890) | |
| Depreciation expense | (2,100) | |
| Wages expense | (11,000) | |
| Other operating expenses | (1,000) | |
| Bond interest expense | (410) | |
| Dividend revenue | 820 | |
| Gain on sale of investments | 700 | |
| Loss on sale of equipment | (200) | |
| Income tax expense | (2,050) | |
| Net income | $ 4,800 |
Dividends declared and paid totaled $700.
On January 1, 2016, convertible preferred stock that had originally been issued at par value were converted into 500 shares of common stock. The book value method was used to account for the conversion.
Long-term nonmarketable investments that cost $1,600 were sold for $2,300.
The long-term note payable was paid by issuing 250 shares of common stock at the beginning of the year.
Equipment with a cost of $2,000 and a book value of $300 was sold for $100. The company uses one Accumulated Depreciation account for all depreciable assets.
Equipment was purchased at a cost of $16,200.
The 12% bonds payable were issued on August 31, 2016, at 97. They mature on August 31, 2026. The company uses the straight-line method to amortize the discount.
Taxable income was less than pretax accounting income, resulting in a $396 increase in deferred taxes payable.
Short-term marketable securities were purchased at a cost of $1,300. The portfolio was increased by $300 to a $3,800 fair value at year-end by adjusting the related allowance account.
Prepare the statement of cash flows.
| LAMBERSON COMPANY Statement of Cash Flows For Year Ended December 31, 2016 |
|---|
Operating Activities:
Prepare the statement of cash flows.
___________________ ____________
Adjustment for noncash income items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Adjustments for cash flow effects from working capital items:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash provided by operating activities ______________
Investing Activities:
___________________ ____________
___________________ ____________
___________________ ____________
___________________ ____________
Net cash used for investing activities ____________
Financing Activities:
___________________ ____________
___________________ ____________
Net cash provided by financing activites ____________
Cash, january 1, 2016 _____________
Cash, december 31, 2016 ____________
Compute the cash flow from operations to sales ratio and the profit margin ratio for 2016. Round your answers to one decimal place.
Cash flows from operations ratio ________:%
Profit margin:___________ %
