For Each of the Unrelated Transactions Described Below, Present the Entry(ies)

question 102

Essay

For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.1. On August 1, 2015, Lane Corporation called its 10% convertible bonds for conversion. The $7,000,000 par bonds were converted into 280,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.3. Gomez Company issues $8,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $7,896,000 and the value of the warrants is $504,000. The bonds with the warrants sold at 101.

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Definitions:

Activity Cost Pools

Aggregations of all the costs associated with a specific activity, used in activity-based costing to allocate costs more accurately.

Estimated Overhead Cost

This refers to the projection or forecast of indirect costs associated with manufacturing processes, not directly tied to specific units of production.

Expected Activity

The projected level of activity or volume of work anticipated for a certain period, often used for planning and budgeting purposes.