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Snhu intermediate accounting 2 chapter 14 question 8 answer

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On January 1, 2015, when its $30 par value common stock was selling for $70 per share, a corporation
issued $20 million of 12% convertible debentures due in 10 years. The conversion option allowed the
holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common
stock. The debentures were issued for $21 million. At the time of issuance, the present value of the
bond payments was $18.50 million, and the corporation believes the difference between the present
value and the amount paid is attributable to the conversion feature. On January 1, 2016, the
corporation’s $30 par value common stock was split 3 for 1. On January 1, 2017, when the corporation’s
$10 par value common stock was selling for $80 per share, holders of 40% of the convertible debentures
exercised their conversion options. The corporation uses the straight-line method for amortizing any
bond discounts or premiums.
Required:
1.
Prepare the journal entry to record the original issuance of the convertible debentures.
2.
Prepare the journal entry to record the exercise of the conversion option, using the book value
method.
Prepare the journal entry to record the original issuance of the convertible debentures on January 1,
2015.
Prepare the journal entry to record the exercise of the conversion option, using the book value method
on January 1, 2017.

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On January 1, 2015, when its $30 par value common stock was selling for $70 per share, a corporation issued $20 million of 12% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value commo ...
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