Question

Bradley-Link’s December 31, 2021, balance sheet included the following items: Long-Term Liabilities ($ in millions) 7.0% convertible bonds, callable at 102 beginning in 2022, due 2025 (net of unamortized discount of $4) [note 8] $196 7.8% registered bonds callable at 105 beginning in 2031, due 2035 (net of unamortized discount of $2) [note 8] 65 Shareholders’ Equity 5 Equity—stock warrants Note 8: Bonds (in part) The 7.0% bonds were issued in 2008 at 97.0 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 7.8% bonds were issued in 2012 at 103 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 $25, beginning 2022. On January 3, 2022, 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 price reached an all-time high of $37 in December of 2022, 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 2008 and 2012. 2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2022 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 2022. 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 2022. 5. Prepare the journal entry to record the exercise of the warrants in December 2022.

Bradley-Link's December 31, 2021. balance sheet included the following items! (sin 4 Long-Term Liabilities 7.es convertible bonds, callable at 102 beginning in 2022 due 2025 (net of unmortized discount of $4) Enote 7.85 registered bonds callable at 105 beginning in ze 31. due 2835 (net of unmortized discount of 52 [note 8 Shareholders' Equity Equity-stock warrants 310 Note 8: Bonds (In part) The 70% bonds were issued in 2008 at 97.0 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 7.8% bonds were issued in 2012 at 103 to yleid 10% Interest is paid semiannually on June 30 and December 31. Each $1.000 be 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 2022 On January 3, 2022 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 price reach an alftime high of $37 in December of 2022. 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 2008 and 2012 2. Prepare the journal entry to record (book value methody the conversion of 90% of the convertible bonds in January 2022 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 2022 4. Assume Bradley-Link Induced conversion by modifying the conversion ratio to exchange 45 shares for each bond rather than the shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2022 5. Prepare the journal entry to record the exercise of the warrants in December 2022

Answer 1

Part 1

Event	General Journal	Debit	Credit
	Record the bond issue that was originally sold in 2005
1	Cash (200*97%)	194
	Discount on bonds payable (balancing figure)	6
	Convertible bonds payable (196+4)		200
	Record the bond issue that was originally sold in 2009
2	Cash (67*103%)	69.0
	Discount on bonds payable (balancing figure)	3.0
	Convertible bonds payable (65+2)		67
	Equity—Stock warrants		5

Part 2

Event	General Journal	Debit	Credit
	Record the conversion of 90% of the convertible bonds
1	Convertible bonds payable (200*90%)	180
	Discount on bonds payable (4*90%)		3.6
	Common Stock (balancing figure)		176.4
	Record the retirement of the remainder bonds
2	Convertible bonds payable (200*10%)	20
	Loss on early extinguishment (balancing figure)	0.8
	Discount on bonds payable (4*10%)		0.4
	Cash (200*10%*102%)		20.4

Part 3

Event	General Journal	Debit	Credit
	Record the conversion of 90% of the convertible bonds
1	Convertible bonds payable (200*90%)	180
	Conversion expense (90%*0.20*150)	27
	Discount on bonds payable (4*90%)		3.6
	Common Stock		176.4
	Cash (90%*0.20*150)		27

Part 4

Event	General Journal	Debit	Credit
	Record the conversion of 90% of the convertible bonds
1	Convertible bonds payable (200*90%)	180
	Conversion expense (90%*(0.20*(45-40))*32)	28.8
	Discount on bonds payable (4*90%)		3.6
	Common Stock (balancing figure)		205.2

Part 5

Event	General Journal	Debit	Credit
	Record the exercise of the warrants
1	Cash (40%*50000*40*37)	29.6
	Equity—Stock warrants (5*40%)	2.0
	Common Stock		31.6