Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $30,000 and the market price of the stock is $21 per share. Record the conversion using the book value approach. Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Use the proportional method to record the issuance of the bonds and warrants.

Solution:

The following journal entries will be passed:

Accounts                                                                Debit  Credit

Bond Payable (2000 bonds x $1000)               $2,000,000  

Discounts on Bonds Payable                                            $30,000

Common Stock (50 shares x $10 x 2000 bonds)           $1,000,000

Paid -in Capital in Excess of Par--Common Stock            $970,000

(TO RECORD CONVERSION)

Cash ( 2000 * $1000 * 1.01)                                $2020000

Discount on bonds payable                                 $59216

Bonds payable (2000 * $1000)                                                     $ 2000000

Paid - in - Capital - Stock warrant                                                   $79216

(To record issuance of bonds with stock warrant)