On January 1, 2001, United Corporation issued $10 million (10,000 units of $1,000 bond) of 8% convertible bonds at 105. The bonds mature in 20 years. Each $1,000 convertible bond can be converted to 20 shares of common stock at the bondholder's option. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $50, one share of united $5 par common stock. On January 1, 2001, the market value of each warrant was $6. On January 1, 2007, 20% of the warrants were exercised and 40% of convertible bonds were converted to stocks. On January 1, 2007, United's common stock had a market price of $80 per share. United uses the straight-line method to amortize discount or premium on the bonds payable and uses the book value method to record the conversion of bonds to stocks.

Required:

1). Prepare the journal entries on January 1, 2001, to record the issuance of the bonds by United.

2) Prepare the journal entries in January 1, 2007 to record the conversions of the bonds.

3). Prepare the journal entries in January 1, 2007 to record the exercise of the warrants.              

Answer rating: 100% (QA)

1 Sno Accounts Explanation Debit Credit 1A ISSUERissuance Cash10 mn105 10500... View the full answer