CHAPTER 16
SOLUTIONS TO B EXERCISES
E16-1B (15–20 minutes)
1. Cash ($50,000,000 X 1.02) ……………………….. 51,000,000
2. Cash ……………………………………………………… 35,350,000
Bonds Payable …………………………………. 35,000,000
Premium on Bonds Payable ……………… 122,500
3. Debt Conversion Expense ………………………. 355,000
Bonds Payable ………………………………………. 60,000,000
Premium on Bonds Payable ……………………. 155,000
E16-2B (15–20 minutes)
(a) Interest Payable ($900,000 X 4/6) …………………….. 600,000
Interest Expense ($900,000 X 2/6) + $1,890 …………. 301,890
Discount on Bonds Payable ……………………… 1,890
Cash ($15,000,000 X 12% ÷ 2) ……………………. 900,000
(b) Bonds Payable ………………………………………………. 7,500,000
Discount on Bonds Payable ………………………. 221,218
E16-3B (10–20 minutes)
Conversion recorded at book value of the bonds:
Bonds Payable ……………………………………………………… 5,600,000
Premium on Bonds Payable ………………………………….. 150,000
E16-4B (15–20 minutes)
(a) Cash ……………………………………………………….. 26,500,000
Bonds Payable ………………………………….. 25,000,000
Premium on Bonds Payable ………………. 1,500,000
(b) Bonds Payable ………………………………………… 10,000,000
Schedule 1
Computation of Unamortized Premium on Bonds Converted
Premium on bonds payable on July 1, 2013 …………… $1,500,000
Schedule 2
Computation of Common Stock Resulting from Conversion
Number of shares convertible on January 1, 2013: Number of bonds
($25,000,000 ÷ $1,000) ……………………………………………. 25,000
Number of shares for each bond ………………………… X 10 250,000
E16-5B (10–20 minutes)
Interest Expense …………………………………………………… 153,395
Discount on Bonds Payable
[$110,050 ÷ 162 = $679; $679 X 5] ………………… 3,395
E16-6B (25–35 minutes)
(a) December 31, 2013
Bond Interest Expense …………………………………….. 56,667
(b) January 1, 2014
Bonds Payable ………………………………………………… 400,000
Premium on Bonds Payable ……………………………… 34,667
E16-6B (Continued)
(c) May 31, 2014
Bond Interest Expense …………………………………….. 18,889
Premium on Bonds Payable ……………………………… 1,111
Bond Interest Payable
(d) June 30, 2014
Bond Interest Expense …………………………………….. 11,333
Premium on Bonds Payable ……………………………… 667**
Bond Interest Payable ………………………………………. 20,000
Cash …………………………………………………………. 32,000*
E16-7B (10–15 minutes)
(a) Basic formulas:
Value of bonds without warrants
X Issue price = Value assigned to bonds
Value of bonds without warrants
+ Value of warrants
Value of bonds without warrants
Cash ……………………………………………………………….. 825,000
Discount on Bonds Payable ………………………………
(b) When the warrants are nondetachable, separate recognition is not given
to the warrants. The accounting treatment parallels that given convertible
debt because the debt and equity element cannot be separated.
E16-8B (10–15 minutes)
Cash …………………………..……………………………………. 10,135,000
Unamortized Bond Issue Costs …………………………. 65,000
Schedule 1
Premium on Bonds Payable and Value of Stock Warrants
Sales price (10,000 X $1,020) ……………………………………………. $10,200,000
Face value of bonds ………………………………………………………… 10,000,000
E16-9B (10–15 minutes)
(a) Cash ($1,000,000 X 1.05) …………………………….. 1,050,000
Bonds Payable ……………………………………… 1,000,000
*$1,050,000 – ($1,000,000 X 1.02)
(b) Market value of bonds without warrants
($1,000,000 X .1.02) ………………………………………………….. $1,020,000
E16-9B (Continued)
Cash ………………………………………………………… 1,050,000
E16-10B (15–25 minutes)
7/1/14 No entry on adoption of plan
1/1/15 No entry (total compensation cost is $660,000)
12/31/15 Compensation Expense ……………………….. 220,000
Paid-in Capital—Stock Options …………….. 220,000
[To record compensation expense
for 2015 (1/3 X $660,000)]
12/31/16 Compensation Expense ……………………….. 220,000
Paid-in Capital in Excess of Par …….. 7,160,000
(Note: The market price of the stock has no relevance in the prior entry and
the following one.)
E16-11B (15–25 minutes)
1/1/14 No entry – total compensation expense is $1,250,000
7/1/14 No entry – compensation total is now only $1,150,000
E16-12B (15–25 minutes)
7/1/13 No entry
12/31/13 Compensation Expense ……………………….. 87,500
Paid-in Capital—Stock Options
($350,000 X 1/2 X 1/2) ……………….. 87,500
E16-12B (Continued)
7/1/15 Cash (35,000 X $58) …………………………..….. 2,030,000
Paid-in Capital—Stock Options ……………… 245,000*
E16-13B (10–15 minutes)
(a) 1/1/14 Unearned Compensation …………………….. 260,000
Common Stock (10,000 X $1) …………… 10,000
Paid-in Capital Excess of Par ………….. 250,000
E16-14B (10–15 minutes)
(a) 1/1/14 Unearned Compensation …………………. 1,100,000
Common Stock ($1 X 50,000) ……….. 50,000
Paid-in Capital in Excess of Par ……. 1,050,000
E16-15B (15–25 minutes)
(a) 10,000,000 shares:
2012 weighted-average number of shares
previously computed ………………………………………. 5,000,000
Retroactive adjustment for stock split ……………………………. X 2
11,500,000
(c) 14,950,000 shares:
2013 weighted average number of shares
previously computed ………………………………………….. 11,500,000
Retroactive adjustment for stock dividend ……………………… X 1.30
14,950,000
15,600,000
E16-16B (10–15 minutes)
(a)
Dates
Outstanding
Shares
Outstanding
Restatement
Fraction
of Year
Weighted
Shares
Jan. 1–Mar. 1
2,650,000
1.2 X 2.0
2/12
1,060,000
Mar. 1–Apr. 1
2,900,000
1.2 X 2.0
1/12
580,000
Apr. 1–Jul. 1
2,700,000
1.2 X 2.0
3/12
1,620,000
Jul. 1–Sep. 1
3,240,000
2/12
Sep. 1–Oct. 1
3,480,000
1/12
580,000
Oct. 1–Dec. 31
6,960,000
3/12
1,740,000