Problem 14-19 (Static) Convertible bonds; induced conversion; bonds with detachable warrants; disclosure note [LO14-5]

Bradley-Links December 31, 2024, balance sheet included the following items:

Long-Term Liabilities	($ in millions)
9.6% convertible bonds, callable at 101 beginning in 2025, due 2028 (net of unamortized discount of $2) [note 8]	$ 198
10.4% registered bonds callable at 104 beginning in 2034, due 2038 (net of unamortized discount of $1) [note 8]	49
Shareholders Equity
Equitystock warrants	4

Note 8: Bonds (in part)

The 9.6% bonds were issued in 2011 at 97.5 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of the Companys no par common stock.

The 10.4% bonds were issued in 2015 at 102 to yield 10%. Interest is paid semiannually on June 30 and December 31. Each $1,000 bond was issued with 40 detachable stock warrants, each of which entitles the holder to purchase one share of the Companys no par common stock for $25, beginning 2025.

On January 3, 2025, when Bradley-Links common stock had a market price of $32 per share, Bradley-Link called the convertible bonds to force conversion. Ninety percent were converted; the remainder were acquired at the call price. When the common stock price reached an all-time high of $37 in December of 2025, 40% of the warrants were exercised.

Required:

1. Prepare the journal entries that were recorded when each of the two bond issues was originally sold in 2011 and 2015.
2. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2025 and the retirement of the remainder.
3. Assume Bradley-Link induced conversion by offering $150 cash for each bond converted. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2025.
4. Assume Bradley-Link induced conversion by modifying the conversion ratio to exchange 45 shares for each bond rather than the 40 shares provided in the contract. Prepare the journal entry to record (book value method) the conversion of 90% of the convertible bonds in January 2025.
5. Prepare the journal entry to record the exercise of the warrants in December 2025.