Question

Exercise 16-04

On January 1, 2019, when its $30 par value common stock was selling for $80 per share, Bridgeport Corp. issued $11,800,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation’s common stock. The debentures were issued for $12,744,000. The present value of the bond payments at the time of issuance was $10,030,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2020, the corporation’s $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2021, when the corporation’s $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.

(a) Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

(b) Prepare the entry to record the exercise of the conversion option, using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

.. Les Answey's Journal Entries SIND Account Titles and Explanations Debit($) Credit ($) (a) Cash $12,744,060 . Bonas payable $11,800,000 premium on onas payable $944,000 (to recova 'issuance of $11,800,000 of 81. Convertable debentures for $12,704,000. The bonds mature in . 20 years, and each $1,000 bond is convertable into 5 shares of $30 pay value common stock) (6) Bonds payable .:. $3.540,000 Premium on Bonas payable $2541880 ... common stock, $15 par $531,000 " Paid in capilal in excess of peis. . $3,263,880 (to record exercising of conversion option)

Explanation's b) Doremium on Bonds payable Premium payable - Jan 1, 2019 : : : 1200 $944.000 Damorti@ation -20191$qukioools).. . $ 47,200 Hi) amortization-2020 ($9441000/0) .. .. $ 47,200 io). Premium payable Jan 1, 2021(i-is-11;) . $849,600 y percentage of Bonds comerted 301. : vid premium on Bonds peryable (ivxv). $854,280 2) common stock's : i) No. of shares for each Bonala 59,000 Dstock split on January 1, 2020 trumber of shares convertible after slock splillxii) 118,000 iv) %. Of bonds converted 30). i) Number of shares issuea (ili xiu). 35,400 vid pay value per share $15 vii) Total par value (Vxvi) $531,000 1511,800,000 xs)

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