On January 1, 2006, Gless Textiles issued $12 Million of 9%, 10-year convertible
ID: 2354049 • Letter: O
Question
On January 1, 2006, Gless Textiles issued $12 Million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s $1 par common stock.1. Prepare the journal entries for the issuance of the bonds by Gless on January 1, 2006.
2. Prepare the journal entries for the June 30, 2010, interest payment by Gless assuming that Gless uses straight-line amortization.
3. On July 1, 2011, when Gless’s common stock had a market price of $33 per share all of the bonds were converted into common shares.
Explanation / Answer
1. DR Cash 12,120,000
CR Convertible bonds payable 12,000,000
CR Premium on bonds payable 120,000
DR Investment in convertible bonds 1,200,000
DR Premium on bond investment 12,000
CR Cash 1,212,000
2. DR Interest Expense 534,000
DR Premium on bonds payable 6,000
CR Cash 540,000
DR Cash 54,000
CR Premium on bond investment 600
CR Interest Revenue 53,400
3. DR Premium on bonds payable
DR Convertible bonds payable 1,200,000
CR Common Stock
DR Investment in common stock
CR Investment in convertible bonds 1,200,000
CR Premium on bond investment
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