1 Alpine Corporation issued a five-year, 5% convertible bonds at 104 on January 1, 2021 with a face value of $8,800,000. Interest is paid annually on December 31. Each $1,000 bond allowed the holder to convert the bond into 7 common shares.

At the time the bonds were issued, Alpine’s common shares were trading at $18/share. Similar bonds without the conversion feature that were trading on the open market paid 4%.

On January 1, 2023, when the fair value of the corporation’s common shares was $20/share, 4,400 of the bond holders converted their bonds to common shares.

Required:

1. Prepare the journal entries required on January 1^st, 2021, to record the issuance of the convertible bonds.
2. Using the book value method, prepare the entry to record the exercise of the conversion option on January 1^st, 2023. 

2

On January 1^st, 2021, Western Corp. granted stock options to its senior executive officers. This is the only stock option plan that Western offers and the details are as follows:

Option to purchase:		25,000 common shares
Option price per share:		$38.00
Fair value per common share on date of grant:		$30.00.
Stock option expiration:		December 31, 2028
Date when options are first exercisable:		January 1, 2024
Total estimated compensation expense related to the options:		$180,000

On January 1, 2022, 5,000 options were cancelled when one of the senior officers left the company. On January 1, 2026, 19,000 of the options were exercised when the fair value of the common shares was $41.00. The remaining stock options were allowed to expire.

Assume that the entity follows ASPE and has decided not to include an estimate of forfeitures upon initial recognition of the compensation expense.

Required:

1. Record all journal entries required for 2021. 
2. Record all journal entries required for 2022. 
3. Record the journal entry on January 1, 2026, the exercise date. 
4. Record any necessary journal entry for the expired options that were not exercised.

Answer rating: 100% (QA)

a Entry to record the issuance of the convertible bonds Date Accounts Debit Cre... View the full answer