On January 1, 2016, Gless Textiles issued $15 million of 8%, 10-year convertible

Question

On January 1, 2016, Gless Textiles issued $15 million of 8%, 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 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: Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century.

Explanation / Answer

The first entry entered for Gless company for the issuance of bonds is correct.

The second entry for Purchase of share of Gless company by Century Services is not correct. The correct entry will be as under:

Date Particulars Debit Credit 2016 Jan 01 Investment in Convertible Bonds(15000000/100*101) 15150000               Cash 15150000

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