We at Accounting Assignments Help provide Conversion of Bonds with step by step calculation and explanation 24*7 from our finance experts.
Conversion of Bonds
E16-2(Conversion of Bonds) Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2007, at 98 plus accrued interest. The bonds were dated April 1, 2007, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.
On April 1, 2008, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.
Instructions
a. Prepare the entry to record the interest expense at October 1, 2007. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)
b. Prepare the entry(ies) to record the conversion on April 1, 2008. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
E16-3(Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of $500,000, and the Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted into preferred stock.
Instructions
Assuming that the book value method was used, what entry would be made?
E16-4(Conversion of Bonds) On January 1, 2006, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation’s common stock. The debentures were issued for $10,800,000. The present value of the bond payments at the time of issuance was $8,500,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2007, the corporation’s $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2008, when the corporation’s $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.
Instructions
a. Prepare in general journal form the entry to record the original issuance of the convertible debentures.
b. Prepare in general journal form the entry to record the exercise of the conversion option, using the book value method. Show supporting computations in good form.
E16-5(Conversion of Bonds) The December 31, 2007, balance sheet of Kepler Corp. is as follows.
10% callable, convertible bonds payable (semiannual interest dates April 30 and October 31; convertible into 6 shares of $25 par value common stock per $1,000 of bond principal; maturity date April 30, 2013) $500,000
Discount on bonds payable 10,240 $489,760
On March 5, 2008, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30 all bondholders had exercised their conversion to common stock as of the interest payment date. Consequently, on April 30, Kepler Corp. paid the semiannual interest and issued shares of common stock for the bonds. The discount is amortized on a straight-line basis. Kepler uses the book value method.
Instructions
Prepare the entry(ies) to record the interest expense and conversion on April 30, 2008. Reversing entries were made on January 1, 2008. (Round to the nearest dollar.)