1. (3 pts)On January 1,
2010 Horrible Inc. issued $1,000,000 of 8% convertible debentures. The bonds pay interest annually on December
31st for 10 years. The market
rate of interest for similar debt is 10%.
The bonds are convertible at the option of the holder into common stock
at a conversion ratio of 5 shares per $1,000 bond. The common stock has a $1 par value.
On January 1, 2011 one half of the holders of the
convertible debentures exercise their conversion option. Prepare the journal entry by Horrible Inc. at
the date of the conversion.
2. (3 pts)Horrible Inc.
issues 10,000, $100 face value, 8% debt with detachable warrants that permit
the holder to purchase one share of stock for $18 per share. The bonds were
issued at 102. Immediately after issue
the bonds were selling for 98 without the warrants and the warrants have a
market value of $8.
Prepare the initial entry to record the issuance using the
5. (4 pts) DCL Industries purchased a supply of
mechanical components from E Corporation on November 1, 2009. In payment for
the $48,000 purchase, DCL issued a 1-year installment note to be paid in equal
monthly payments at the end of each month. The payments include interest at the
rate of 12%. The cost of the inventory
to E Corporation was $43,000.
the journal entry for DCL’s (Borrower) purchase of the components on November
the journal entry for the first installment payment on November 30, 2009 by DCL
the journal entry for the second installment payment on December 31, 2009 by
the journal entry for E Corporationâs (Lender) sale of the components on
November 1, 2009.
the journal entry for the first installment payment on November 30, 2009 by E
the journal entry for the second installment payment on December 31, 2009 by E