The following events relate to Mathers Corporation\'s issue of convertible deben

Question

The following events relate to Mathers Corporation's issue of convertible debentures: On January 1, 201 5, the Mathers Corporation issued $500,000 of 12% convertible bonds for $460,000. The bonds are due on January 1, 2025, and interest is paid on July 1 and January value of $1 per share. On the date of bond issuance, a share of common stock was selling at $24 On January 2, 2017, 12% convertible bonds with a face value of $300,000 were converted into common stock. The market value of the common stock on the date of conversion was S40 per share. Mathers uses the straight-line method to amortize premiums and discounts. 1. Each $1,000 bond is convertible into 30 shares of common stock with a par Required: a. Prepare the journal entry to record the issuance of the convertible bonds. b. Record the conversion on January 2, 2017, using: (1) the book value method (2) the market value method Assuming that any gain or loss on conversion is material, how would it be disclosed in C. the financial statements?

Explanation / Answer

Answer

A.

B.

1.Book Value Method:

2.Market Value Method:

C.

it be disclosed in the financial statements:

The loss, if material, would be classified as an ordinary item on the income statement.

Date Particulars Dr Cr Cash 460000 Discount on Bonds Payable 40000 Bonds Payable 500000

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