On January 1, 2017, Sunland Corporation issued $3,980,000 of 10-year, 8% convert

Question

On January 1, 2017, Sunland Corporation issued $3,980,000 of 10-year, 8% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Sunland Corporation $101 par value common stock after December 31, 2018.

On January 1, 2019, $398,000 of debentures are converted into common stock, which is then selling at $112. An additional $398,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $117. Accrued interest at March 31 will be paid on the next interest date.

Bond premium is amortized on a straight-line basis.

Make the necessary journal entries for:

Record the conversions using the book value method. (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. 5,275.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a)

(b)

(c)

(To record interest expense)

(To record the conversion)

(d)

Explanation / Answer

Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-18 Interest Expense    151,240.00 Premium on Bonds Payable        7,960.00 $159,200 X 1/20    Cash    159,200.00 $3,980,000 X 8% X 6/12 (Record the Interest Paid) 1-Jan-19 Bonds Payable    398,000.00 Premium on Bonds Payable      12,736.00 $159200 X 16/20 X 10%    Common Stock    318,400.00 $398,000 / $1,000 X 8 Shares X $100    Paid in Capital in Excess of Par      92,336.00 (record the bonds converted into common stock) 31-Mar-19 Bond Interest Expense        6,962.00 Premium on Bonds Payable            398.00 $7,960 X 10% X 3/6    Bond Interest Payable        7,360.00 $398,000 X 8% X 3/12 (Record the Bonds Interest accrued on bonds converted) 31-Mar-19 Bonds Payable    398,000.00 Premium on Bonds Payable      12,338.00 $159200 X 16/20 X 10% -$398    Common Stock    318,400.00 $398,000 / $1,000 X 8 Shares X $100    Paid in Capital in Excess of Par      91,938.00 (record the bonds converted into common stock) 30-Jun-19 Interest Expense    113,632.00 Premium on Bonds Payable        6,368.00 $101,888 X 1/16 Bond Interest Payable        7,360.00    Cash    127,360.00 $3,184,000 X 8% X 6/12 (Record the Interest Paid) Premium on Bonds Payable: Original Premium    159,200.00 Less: 2017 - Amortization      15,920.00 Less: 2018 - Amortization      15,920.00 Jan 1, 2019 - Write of      12,736.00 Mar 31, 2019 - amortization            398.00 Mar 31, 2019 - Write Of      12,338.00 Balance    101,888.00

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