On January 1, 2013, Gless Textiles issued $29 million of 8%, 20-year convertible
ID: 2423829 • Letter: O
Question
On January 1, 2013, Gless Textiles issued $29 million of 8%, 20-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 no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 10% of the issue as an investment.
Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
Prepare the journal entries for the June 30, 2017, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
On July 1, 2018, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
On January 1, 2013, Gless Textiles issued $29 million of 8%, 20-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 no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 10% of the issue as an investment.
Required: 1.Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
2.Prepare the journal entries for the June 30, 2017, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
3.On July 1, 2018, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a particular event, select "No journal entry required" in the first account field.)
Explanation / Answer
Jan 1 2013
Bank A/C Dr 29290000
To Premium on issue of bond A/C 290000
To Notes payable 29000000
(For bond issued at Premium by Gless)
Notes payable A/C Dr 2900000
Premium on issue A/C Dr 2900
To Bank A/C 2929000
(For bonds purchased by Century)
June 30,2017
Interest A/C Dr 116000
To Outstanding interest A/C 116000
(For half yearly interest due to be paid
2900000*8/100*6/12)
Outstanding interest A/C Dr 116000
To Bank A/C 116000
(For half yearly interest paid)
Accrued interest A/C Dr 116000
To Interest A/C 116000
(For half yearly interest due to received)
Bank A/C Dr
To Accrued Interest A/C
(For half yearly interest received)
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