accounting question Transactions on convertible bonds Garr co. issued $4,000,000
ID: 2445858 • Letter: A
Question
accounting question Transactions on convertible bonds Garr co. issued $4,000,000 of 6%, 5-year convertible bonds on January 1, 2014 for 105. The bonds pay interest semiannually on June 30 and December 31. Bond premium is amortized each interest period On a straight-line basis. On October 1, 2015, $2,000,000 of these bonds were converted into 28,000 shares of $15 par common stock. Accrued interest on Oct 1, 2015 was paid in cash on the next interest pay date on December 31, 2015. Make the journal entries on 1) June 30, 2015 2) October 1, 2015 3) December 31, 2015Explanation / Answer
Answer:1)
30 june 2015
Interest Payable. ............................................................................. 40,000
Interest Expense. ............................................................................ 64615
Premium on Bonds Payable. .......................................................... $15385
To Cash. ................................................................................... 120,000
Calculations:
Issuance price $4,200000
Par value 4,000,000
Total premium $200000
Months remaining 52
Premium per month $3846.15
Premium amortized (4 × $3846.15) $15385
Answer: 1 oct 2015
Bonds Payable. ............................................................................... 2,000,000
Premium on Bonds Payable. .......................................................... $61538
To Common Stock (28,000 × $15). ......................................... 420,000
To Paid-in Capital in Excess of Par. ........................................ 1641538
Calculations:
Premium related to 1/2 of the bonds $100000 ($200000 ÷ 2)
Less premium amortized 3,8462 [($200000 ÷ 52) × 10]
Premium remaining $61538
Answer:31 dec 2015
Interest Payable. ............................................................................. 20,000
Interest Expense. ............................................................................ 32308
Premium on Bonds Payable. .......................................................... $7692.5
To Cash. ................................................................................... 60,000
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