Bradley-Linkâs December 31, 2016, balance sheet included thefollowing items: Long-Term Liabilities ($ in millions) 8.0%convertible bonds, callable at 102 beginning in 2017, due 2020 (netof unamortized discount of $6) [note 8] $144 11.0% registered bondscallable at 105 beginning in 2026, due 2030 (net of unamortizeddiscount of $2) [note 8] 52 Shareholdersâ Equity 5 Equityâstockwarrants Note 8: Bonds (in part) The 8.0% bonds were issued in 2003at 96.0 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond is convertible into 50 shares of theCompanyâs no par common stock. The 11.0% bonds were issued in 2007at 103 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond was issued with 50 detachable stockwarrants, each of which entitles the holder to purchase one shareof the Companyâs no par common stock for $30, beginning 2017. OnJanuary 3, 2017, when Bradley-Linkâs common stock had a marketprice of $37 per share, Bradley-Link called the convertible bondsto force conversion. 90% were converted; the remainder wereacquired at the call price. When the common stock price reached anall-time high of $42 in December of 2017, 40% of the warrants wereexercised.
Required: 1. Prepare the journal entries that were recorded wheneach of the two bond issues was originally sold in 2003 and2007
2. Prepare the journal entry to record (book value method) theconversion of 80% of the convertible bonds in January 2017 and theretirement of the remainder.
3. Assume Bradley-Link induced conversion by offering $120 cashfor each bond converted. Prepare the journal entry to record (bookvalue method) the conversion of 90% of the convertible bonds inJanuary 2017.
4. Assume Bradley-Link induced conversion by modifying theconversion ratio to exchange 55 shares for each bond rather thanthe 50 shares provided in the contract. Prepare the journal entryto record (book value method) the conversion of 80% of theconvertible bonds in January 2017.
5. Prepare the journal entry to record the exercise of thewarrants in December 2017
Bradley-Linkâs December 31, 2016, balance sheet included thefollowing items: Long-Term Liabilities ($ in millions) 8.0%convertible bonds, callable at 102 beginning in 2017, due 2020 (netof unamortized discount of $6) [note 8] $144 11.0% registered bondscallable at 105 beginning in 2026, due 2030 (net of unamortizeddiscount of $2) [note 8] 52 Shareholdersâ Equity 5 Equityâstockwarrants Note 8: Bonds (in part) The 8.0% bonds were issued in 2003at 96.0 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond is convertible into 50 shares of theCompanyâs no par common stock. The 11.0% bonds were issued in 2007at 103 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond was issued with 50 detachable stockwarrants, each of which entitles the holder to purchase one shareof the Companyâs no par common stock for $30, beginning 2017. OnJanuary 3, 2017, when Bradley-Linkâs common stock had a marketprice of $37 per share, Bradley-Link called the convertible bondsto force conversion. 90% were converted; the remainder wereacquired at the call price. When the common stock price reached anall-time high of $42 in December of 2017, 40% of the warrants wereexercised.
Required: 1. Prepare the journal entries that were recorded wheneach of the two bond issues was originally sold in 2003 and2007
2. Prepare the journal entry to record (book value method) theconversion of 80% of the convertible bonds in January 2017 and theretirement of the remainder.
3. Assume Bradley-Link induced conversion by offering $120 cashfor each bond converted. Prepare the journal entry to record (bookvalue method) the conversion of 90% of the convertible bonds inJanuary 2017.
4. Assume Bradley-Link induced conversion by modifying theconversion ratio to exchange 55 shares for each bond rather thanthe 50 shares provided in the contract. Prepare the journal entryto record (book value method) the conversion of 80% of theconvertible bonds in January 2017.
5. Prepare the journal entry to record the exercise of thewarrants in December 2017
Related questions
Accounting, Analysis, and Principles
The following information is taken from the 2017 annual reportof Carla, Inc. Carlaâs fiscal year ends December 31 of each year.Carlaâs December 31, 2017, balance sheet is as follows.
| Carla, Inc. Balance Sheet December 31, 2017 | |||
| Assets | |||
| Cash | $460 | ||
| Inventory | 1,790 | ||
| Total current assets | 2,250 | ||
| Plant and equipment | 1,900 | ||
| Accumulated depreciation | (152) | ||
| Total assets | 3,998 | ||
| Liabilities | |||
| Bonds payable (net of discount) | $1,426 | ||
| Stockholdersâ equity | |||
| Common stock | 1,500 | ||
| Retained earnings | 1,072 | ||
| Total liabilities andstockholdersâ equity | $3,998 | ||
Note X: Long Term Debt:
On January 1, 2018, Carla issued bonds with face value of $1,500and a coupon rate equal to 10%. The bonds were issued to yield 12%and mature on January 1, 2023.
Additional information concerning 2018 is as follows.
| 1. | Sales were $3,600, all for cash. | |
| 2. | Purchases were $2,200, all paid in cash. | |
| 3. | Salaries were $700, all paid in cash. | |
| 4. | Property, plant, and equipment was originally purchased for$1,900 and is depreciated straight-line over a 25-year life with nosalvage value. | |
| 5. | Ending inventory was $1,800. | |
| 6. | Cash dividends of $110 were declared and paid by Carla. | |
| 7. | Ignore taxes. | |
| 8. | The market rate of interest on bonds of similar risk was 12%during all of 2018. | |
| 9. | Interest on the bonds is paid semiannually each June 30 andDecember 31. |
Partially correct answer. Your answer is partiallycorrect. Try again.
Prepare a balance sheet for Carla, Inc. at December 31, 2018.Assume semiannual compounding of the bond interest. (List CurrentAssets in order of liquidity.)
