1. Record the journal entry for the issuance of the convertible bonds on January
ID: 2501507 • Letter: 1
Question
1. Record the journal entry for the issuance of the convertible bonds on January 1, Year 1.
2. Record the journal entries on June 30, Year 1 to recognize interest expense and the amortization of the bond issue cost for the first six months of Year 1.
On January 1, Year 1, Acorn Financial Corp. issued 800 convertible bonds. Each $1,000 face value bond is convertible into 5 shares of common stock. The bonds have a 10 year term to maturity and pay interest semiannually. Acorn's common stock has a par value of $20.00 per share. The bonds have a stated interest rate of 4% and pay interest semiannually. The convertible bonds were sold for $875,500. Bond issue costs of $50,000 will be subtracted from the bond sale proceeds to be received by Acorn. The bonds were sold to yield a market interest rate of 3%. Acorn will use the effective interest method to amortize the bond discount and/or premium. Round all amounts to the nearest dollar.Required:
1. Record the journal entry for the issuance of the convertible bonds on January 1, Year 1.
2. Record the journal entries on June 30, Year 1 to recognize interest expense and the amortization of the bond issue cost for the first six months of Year 1.
Explanation / Answer
Date Account Title Debit Credit January 1 Year 1 Cash 825,500 Bond issue cost 50,000 Convertible bonds 875,500 June 30 Year 1 Interest expense 16,750 Amortization of bond issue cost 750 Cash 16,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.