On January 1, 2013, when its $32 par value common stock was selling for $75 per

Question

On January 1, 2013, when its $32 par value common stock was selling for $75 per share, Plato Corp. issued $11,960,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation's common stock. The debentures were issued for $12,916,800. The present value of the bond payments at the time of issuance was $9,461,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2014, the corporation's $32 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2015, when the corporation's $16 par value common stock was selling for $155 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums (a) Prepare the entry to record the original issuance of the convertible debentures. (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.) Account Titles and Explanation Debit Credit Cash 12916800 Bonds Payable 11960000 Premium on Bonds Pay 956800 (b) Prepare the entry to record the exercise of the conversion option, using the book value method. Show supporting computations in good form. (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.) Account Titles and Explanation Debit Credit Bonds Payable 3588000 Premium on Bonds Payable 258120 Common Stock 574080 Paid-in Capital in Exces 3272040

Explanation / Answer

Account Title and Explanation Debit Credit Cash 1,29,16,800           To Bonds payable     1,19,60,000            To Premium on Bonds Payable          9,56,800 (being Original Bonds Issued)

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