Question

millions) Long-Term Liabilities 11.01 convertible bonds, callable at 104 beginning in 2022, due 2025 (net of a rtised discount of $9) (notes) 11.11 registered bonds callable at 107 beginning in 2031, due 2035 (net of unmortized discount of $2) (note 81 Shareholders' Equity Equity-stock warrants 92 Note 8: Bonds (in part) The 11.0% bonds were issued in 2008 at 96.0 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of the Company's no par common stock Berences The 11.8% bonds were issued in 2012 at 105 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entities 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 55 shares for each bond rather than the 50 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

	($ in millions)	($ in millions)
1)	Debit	Credit
Convertible Bonds – 2008 issue
Cash(96% x $300 million)	288
Discount on bonds (difference)	12
Convertible bonds payable (face amount)		300
Bonds With Warrants – 2012 issue
Cash(105% x $64 million)	67.2
Discount on bonds payable (difference)	4.8
Convertible bonds payable (face amount)		64
Equity – stock warrants (given)		8
2)
Convertible bonds payable (90% x $300 million)	270
Discount on bonds payable (90%x $9 million)		8.1
Common stock (to balance)		261.9
Convertible bonds payable (10% x $300 million )	30
Loss on early extinguishment (to balance)	2.1
Discount on bonds payable (10%x $9 million)		0.9
Cash (104% x $300 M x 10%)		31.2
3)
Convertible bonds payable (90% x $300 million)	270
Conversion expense (90% x 300,000 bonds x $150)	40.5
Discount on bonds payable (90%x $9 million)		8.1
Common stock (to balance)		261.9
Cash (90% x 300,000 bonds x $150)		40.5
4)
Convertible bonds payable (90% x $300 million)	270
Conversion expense (90% x [300,000 x (55 – 50) shares] x $32	43.2
Discount on bonds payable (90%x $9 million)		8.1
Common stock (to balance)		305.1
5)
Cash(40% x 50,000 x 40 warrants x $25)	20
Equity – stock warrants (40% x $8 million)	3.2
Common stock(to balance)		23.2