On January 1, 2014, Gottlieb Corporation issued $4,120,000 of 10-year, 9% conver

Question

On January 1, 2014, Gottlieb Corporation issued $4,120,000 of 10-year, 9% convertible debentures at 103. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Gottlieb Corporation $104 par value common stock after December 31, 2015.

On January 1, 2016, $412,000 of debentures are converted into common stock, which is then selling at $115. An additional $412,000 of debentures are converted on March 31, 2016. The market price of the common stock is then $120. 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:

Dec-31-15

Jan-1-16

Mar-31-16

June-30-16

Explanation / Answer

Jan 1.2014. Face value of Bond         4,120,000 Issue Price @103%=         4,243,600 Premium On Bond =             123,600 Duration of Bond                          10 years Amortization per Half year=                  6,180 Amortization in 2015               12,360 Balance premium on Bond             111,240 On Jan 1 2016. Conversion =10%   Bond Face value converted               412,000 Premium conversion=               11,124 No fo shares issued =                  3,296 Date Account Title Dr $ Cr $ Dec 31.2015. Cash            185,400 Interest Expense             179,220 Premium on Bond                  6,180 Date Account Title Dr $ Cr $ Jan 1.2016. Bond Payable             412,000 Premium on Bond Payable               11,124 Common Stock ($104 par , 3296)          342,784 Paid in Capital in Excess of Par -Common stock             36,256 Gain On Conversion of Bond               44,084 March 31 Balance in Bond a/c Bond Payable         3,708,000 Balance premium on Bond (less amortization $3090*0.90)               97,335 Conversion amt $ 412000 % conversion = 11.11% Bond Face value convesrion             412,000 Premium Conversion=               10,815 No of shares issued =                  3,296 Date Account Title Dr $ Cr $ Mar 1.2016. Bond Payable             412,000 Premium on Bond Payable               10,815 Common Stock ($104 par , 3296)          342,784 Paid in Capital in Excess of Par -Common stock             52,736 Gain On Conversion of Bond               27,295 Interest Calculation For 3 months on Bond face value=         3,708,000 Interest payable @ 9%                 83,430 Bond premium amortized =6180*2*0.90=                  2,781 For 3 months on Bond face value=         3,296,000 Interest payable @ 9%                 74,160 Bond premium amortized =6180*2*0.90*0.8989=                  2,500 Total interest Payable on June 30=             157,590 Date Account Title Dr $ Cr $ Jun 31.2016. Cash          157,590 Interets Expense             152,309 Bond Premium                    5,281 ( paymnet of accrued interest)

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