On January 1, 2016, Headland issued 10-year, $200,000 face value, 6% bonds at pa

Question

On January 1, 2016, Headland issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Headland $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2017. (Ignore all tax effects.)Assume that 75% of the holders of Headland’s convertible bonds convert their bonds to stock on June 30, 2018, when Headland’s stock is trading at $32 per share. Headland pays $50 per bond to induce bondholders to convert. Prepare the journal entry to record the conversion.

Explanation / Answer

Bonds Issued $200,000 Bonds Converted $150,000 $1,000 30 $150,000 No of Shares to be issued - (150000*30)/1000 4500 Transactions Debit Credit Conversion Expense $225,000 (4500*50) Bond Payable $150,000 To Common Stock - Ordinary 9000 To Share Premium- Ordinary $141,000 To Cash $225,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

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