Aubrey Inc. issued $5,133,000 of 9%, 10-year convertible bonds on June 1, 2014,

Question

Aubrey Inc. issued $5,133,000 of 9%, 10-year convertible bonds on June 1, 2014, at 97 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.

On April 1, 2015, $1,924,875 of these bonds were converted into 31,200 shares of $17 par value common stock. Accrued interest was paid in cash at the time of conversion.

a) Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued.

b) Prepare the entry to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.

Explanation / Answer

Entry on issue of bonds : Let face value of bond= 100 Cash $5,133,000 Interest = 100 * 9%*2/12= 1.5 To Bonds payable $5,133,000 Cum interest value of bond = 97+ 1.5 = 98.5 amount invested on bond = 5133000 Value cum interest per bond = 98.5 No of bonds= 5133000/98.5=52112 bonds a. Interest on bonds on oct 2014 Entry: Interest on bonds payable $234,504 52112*100*9%*6/12=234504 To Bonds payable $234,504 b. Conversion of $1924875 into 31200 shares 0f $17 Entry : Bonds payable $1,924,875 $1924875/98.5= 19542 bonds To common stock $530,400 Converted into 31200 shares @ $17 To Paid-in Capital in Excess of Par $1,394,475 31200*17=530400 c. Interest accrued to be paid in cash( Oct to Mar) Entry: Interest on bonds payable $234,504 52112*100*9%*6/12=234504 To cash $234,504

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.