On January 1, 2014, Gottlieb Corporation issued $3,570,000 of 10-year, 10% conve
ID: 2453016 • Letter: O
Question
On January 1, 2014, Gottlieb Corporation issued $3,570,000 of 10-year, 10% convertible debentures at 103. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 9 shares of Gottlieb Corporation $102 par value common stock after December 31, 2015. On January 1, 2016, $357,000 of debentures are converted into common stock, which is then selling at $113. An additional $357,000 of debentures are converted on March 31, 2016. The market price of the common stock is then $116. 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, 2015. (c) March 31, 2016. (b) January 1, 2016. (d) June 30, 2016.
Record the conversions using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) No. Date Account Titles and Explanation Debit Credit (a) Dec. 31, 2015 (b) Jan. 1, 2016 (c) Mar. 31, 2016 (To record interest expense) Mar. 31, 2016 (To record the conversion) (d) Jun. 30, 2016
Explanation / Answer
Answer
The conversions is being recorded using the book value method
Working
The conversions using the book value method
December 31, 2015.
Bonds Pemium on January 1 2014 = 3570000*(103-100)% = 107100
Amortisation of Bond Premium on decmber 31 2015 = 107100/(10*2) = 5355
Interest Payment = 3570000*10%*1/2 = 178500
Unamortised Bonds premium after decmber 31 2015 = 107100 - 5355*4 = 85680
January 1, 2016.
Conversion of $357,000 of debentures are converted into common stock
No of Common Stock Issued = 357000/1000 * 9 = 3213
Par Value of Common Stock Issued = 3213 * 102 = $ 327726
Bonds payable = 357000
Bonds Premium unamortised = 357000*3% - 357000*3%/20*4 = $ 8568
Additional Paid in Capital = 357000+8568 - 327726 = 37842
March 31, 2016.
An additional Conversion of $357,000 of debentures are converted into common stock
Interest payable = 357000*10%*1/2 *3/6 = 8925
Bond Premium Amortised = 357000*3%/20 * 3/6 = 268
Interest Expenses = 8925-268 = 8657
No of Common Stock Issued = 357000/1000 * 9 = 3213
Par Value of Common Stock Issued = 3213 * 102 = $ 327726
Bonds payable = 357000
Bonds Premium unamortised = 357000*3% - 357000*3%/20*4 - 268 = $ 8300
Additional Paid in Capital = 357000+8300 - 327726 = 37574
Jun. 30, 2016
Interest Payable Paid= $ 8925
Interest Paid on Bonds Outstanding = (3570000-357000-357000)*10%*1/2 = $ 142800
Total Interest Paid in cash = 142800 + 8925 = 151725
Bonds Premium Amortisation = (3570000-357000-357000)*3%/20 = 4284
Interest Expenses to be recorded =142800 - 4284
Interest Expenses to be recorded = 138516
No. Date Account Titles and Explanation Debit Credit a) Dec. 31, 2015 Interest Expenses 173145 Bonds Premium 5355 Cash 178500 b) Jan. 1, 2016 Bonds Payable 357000 Bonds Premium 8568 Common Stock 327726 Additional Paid in capital 37842 c) Mar. 31, 2016 Interest Expenses 8657 Bonds Premium 268 Interest Payable 8925 (To record interest expense) Mar. 31, 2016 Bonds Payable 357000 Bonds Premium 8300 Common Stock 327726 Additional Paid in capital 37574 (To record the conversion) d) Jun. 30, 2016 Interest Expenses 138516 Interest Payable 8925 Bonds Premium 4284 Cash 151725Related Questions
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