Chapter 16: Q6E (page 876)
Question: (Conversion of Bonds) On January 1, 2017, Gottlieb Corporation issued \(4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semi-annually on June 30 and December 31. Each \)1,000 debenture can be converted into eight shares of Gottlieb Corporation \(100 par value common stock after December 31, 2018. On January 1, 2019, \)400,000 of debentures are converted into common stock, which is then selling at \(110. An additional \)400,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.
Make the necessary journal entries for:
(a) December 31, 2018. (c) March 31, 2019.
(b) January 1, 2019. (d) June 30, 2019.
Record the conversions using the book value method
Short Answer
Answer
(a) Bond Interest Expense and Premium on Bonds Payable will be debited. Cash will be credited.
(b) Bonds Payable and Premium on Bonds Payable will be debited. Common Stock and Paid-in Capital in Excess of Par will be credited.
(c) Bond Interest Expense, Premium on Bonds Payable, Bond Interest Payable and Bonds Payable will be debited. Premium on Bonds Payable, Common Stock and Paid-in Capital in Excess of Par will be credited.
(d) Bond Interest Expense, Premium on Bonds Payable, and Bond Interest Payable will be debited. Cash will be credited.