Garr Co. issued $4,288,000 of 12%, 5-year convertible bonds on December 1, 2017

Question

Garr Co. issued $4,288,000 of 12%, 5-year convertible bonds on December 1, 2017 for $4,306,117 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30. On October 1, 2018, $2,144,000 of these bonds were converted into 29,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion. Prepare the entry to record the interest expense at April 1, 2018. Assume that interest payable was credited when the bonds were issued. (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. Round answers to 0 decimal places, e.g. 5,725.) Date Account Titles and Explanation Debit Credit Apr. 1, 2018 SHOW LIST OF ACCOUNTS Prepare the entry to record the conversion on October 1, 2018. Assume that the entry to record amortization of the bond premium and interest payment has been made. (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. Round answers to 0 decimal places, e.g. 5,725.) Date Account Titles and Explanation Debit Credit Oct. 1, 2018

Explanation / Answer

Cost of issue of bond = 4288000 Issue price = 4306117 Convertible price = 29000*15 = 435000 interest rate = 12% Presetn value of bond of $ 2144000 = 2144000 * PVF 12%,5 years = 2144000* 0.567= 1215648 equity portion = 2153059-1215648 = 937411 1.12.2017 Bank A/c dr 4306117           to 12% convertible bonds 1215648          to share premium - equity converrsion 937411 No entry for interest, because market expected rate is not given in the problem Conversion entry 12% conversion bonds a/c dr 937411 share premium a/c dr 1215648                       to share capital 435000                        to discount on shares 1709000

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

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