Question

($ in millions) $198 Long-Term Liabilities 9.6% convertible bonds, callable at 101 beginning in 2022, due 2025 (net of unamortized discount of $2) [note 8] 10.4% registered bonds callable at 104 beginning in 2031, due 2035 (net of unamortized discount of $1) [note 8] Shareholders' Equity Equity-stock warrants Note 8: Bonds (in part) The 9.6% bonds were issued in 2008 at 97.5 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 10.4% bonds were issued in 2012 at 102 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.

Answer 1

Requirement 1:

a. Journal entry for the bonds issued in 2008

Date	Account Title and Explanation	Debit (in million)	Credit (in million)
2008	Cash ($200 million × 97.5%)	$195.0
	Discount on Bonds Payable ($200 million − $195 million)	$5.0
	9.6% Convertible Bonds Payable ($198 million + $2 million)		$200.0
	To record 9.6% convertible bonds issued

b. Journal entry for the bonds issued in 2012

2012	Cash ($50 million × 102%)	$51.0
	Discount on Bonds Payable ($50 million + 4 million − $51 million)	$3.0
	10.4% Convertible Bonds Payable ($49 million + $1 million)		$50.0
	Equity Stock Warrants		$4.0
	To record 10.4% bonds with warrants issued

Requirement 2:

a. Record the following journal entry for the conversion of 90% of convertible bonds

January	9.6% Convertible Bonds Payable ($200 million × 90%)	$180.0
2022	Discount on Bonds Payable ($2 million × 90%)		$1.8
	Common Stock ($180 million − $1.8 million)		$178.2
	To record conversion of 90% of 9.6% convertible bonds

b. Record the following journal entry for the retirement of remainder bonds

January	9.6% Convertible Bonds Payable ($200 million × 10%)	$20.0
2022	Loss on Early Retirement of Bonds Payable ($20.20 + $0.20 − $20)	$0.4
	Discount on Bonds Payable ($2 million × 10%)		$0.2
	Cash (200 million − $180 million) × 101%		$20.2
	To record early retirement of remainder bonds

Requirement 3: Record the following journal entry for the conversion of 90% of the convertible bonds

January	9.6% Convertible Bonds Payable ($200 million × 90%)	$180.0
2022	Conversion Expense (200,000 bonds × $150 × 90%)	$27.0
	Discount on Bonds Payable ($2 million × 90%)		$1.8
	Common Stock ($180 + $27 − $1.8 − $27)		$178.2
	Cash (200,000 bonds × $150 × 90%)		$27.0
	To record conversion of 9.6% convertible bonds

Requirement 4: Record the following journal entry for the conversion of 90% of the convertible bonds

January	9.6% Convertible Bonds Payable ($200 million × 90%)	$180.0
2022	Conversion Expense (200,000 bonds × (45− 40) shares × $32 × 90%)	$28.8
	Discount on Bonds Payable ($2 million × 90%)		$1.8
	Common Stock ($180 + $28.8 − $1.8)		$207.0
	To record conversion 9.6% convertible bonds

Requirement 5: Record the following journal entry for the exercise of warrants

December	Cash (50,000 bonds × 40 warrants per bond × 40% × $25)	$20.0
2022	Equity Stock Warrants ($4 million × 40%)	$1.6
	Common Stock		$21.6
	To record equity stock warrants exercised