i NEED A DETAIL EXPLANATION OFTHIS PROBLEM. Through out the solution, I do not k

Question

i NEED A DETAIL EXPLANATION OFTHIS PROBLEM. Through out the solution, I do not know how they get these number from (these number that I bold it out). Can you help me??

Convertible Bonds.

Garr Co. issued $4,000,000 of 12%, 5-year convertible bonds on December 1, 2014 for $4,016,900 plus accrued interest. The bonds were dated April 1, 2014 with interest payable
April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30.

On October 1, 2015, $2,000,000 of these bonds were converted into 28,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.

Instructions

(a)   Prepare the entry to record the interest expense at April 1, 2015. Assume that interest payable was credited when the bonds were issued (round to nearest dollar).

(b)   Prepare the entry to record the conversion on October 1, 2015. Assume that the entry to record amortization of the bond premium and interest payment has been made.

Solution 16-135

(a)     Interest Payable..............................................................................        80,000

         Interest Expense.............................................................................      158,700

         Premium on Bonds Payable...........................................................          1,300

                     Cash....................................................................................                          240,000

         Calculations:

                     Issuance price                                                    $4,016,900

                     Par value                                                            4,000,000

                     Total premium                                                    $     16,900

                     Months remaining 52 (WHERE DID NUMBER COME FROM??)

                     Premium per month                                                     $325

                     Premium amortized (4 × $325) $1,300

Explanation / Answer

Solution:

Interest payable: $4000000*12/100 =$480000*4/12= $160000 /2= 80000

Since half of the bonds were converted, therefore, half of interest payable will be taken

Interest expense: Interest expense is $160000 calculated above. But we will subtract the premium(1300) from it. $160000- 1300= $158700

Remaining months: According to 5 months, it should be 12*5= 60 months. But since bonds are dates april1,2014, we will subtract 8 months ( from april 2014 to november 2014) from it. 60-8= 52

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