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Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 9P
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Follow the instructions and Prepare journal entries.

 

 

 

 

On January 1, 2020, Concord Corporation issued a series of 400 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Concord received $428,000 for the bond issue. The bonds paid interest every December 31 at 4%; the market interest rate for bonds with a comparable level of risk was 3%. The bonds were convertible to common shares at a rate of ten common shares per bond. Concord amortized bond premiums and discounts using the effective interest method, and the company's year-end was December 31. On January 1, 2021, 80 of the bonds were converted into common shares. On June 30, 2021, another 80 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds. On January 1, 2022, when the fair value of the bonds was $249,800 due to a decrease in market interest rates, a conversion inducement of $17/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 240 bonds were converted into common shares at this time. Prepare all required journal entries to record the above transactions. (Hint: don't forget to accrue interest and amortize the premium on the bond at year-end, if needed). (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Transcribed Image Text:On January 1, 2020, Concord Corporation issued a series of 400 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Concord received $428,000 for the bond issue. The bonds paid interest every December 31 at 4%; the market interest rate for bonds with a comparable level of risk was 3%. The bonds were convertible to common shares at a rate of ten common shares per bond. Concord amortized bond premiums and discounts using the effective interest method, and the company's year-end was December 31. On January 1, 2021, 80 of the bonds were converted into common shares. On June 30, 2021, another 80 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds. On January 1, 2022, when the fair value of the bonds was $249,800 due to a decrease in market interest rates, a conversion inducement of $17/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 240 bonds were converted into common shares at this time. Prepare all required journal entries to record the above transactions. (Hint: don't forget to accrue interest and amortize the premium on the bond at year-end, if needed). (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Date Jan. 1, 2020 Jan. 1, 2021 Account Titles and Explanation Cash Dec. 31, 2020 Interest Expense Bonds Payable Cash Bonds Payable Contributed Surplus - Conversion Rights Common Shares Bonds Payable Contributed Surplus - Conversion Rights Jun. 30, 2021 Bonds Payable Jan. 1, 2022 Contributed Surplus - Conversion Rights Interest Expense Common Shares Dec. 31, 2021 Interest Expense Bonds Payable Cash Bonds Payable Loss on Redemption of Bonds Contributed Surplus - Conversion Rights Retained Earnings Common Shares Cash Debit 428000 12550 3450 82263 1936 82263 Credit 418319 9681 16000 84199
Transcribed Image Text:Date Jan. 1, 2020 Jan. 1, 2021 Account Titles and Explanation Cash Dec. 31, 2020 Interest Expense Bonds Payable Cash Bonds Payable Contributed Surplus - Conversion Rights Common Shares Bonds Payable Contributed Surplus - Conversion Rights Jun. 30, 2021 Bonds Payable Jan. 1, 2022 Contributed Surplus - Conversion Rights Interest Expense Common Shares Dec. 31, 2021 Interest Expense Bonds Payable Cash Bonds Payable Loss on Redemption of Bonds Contributed Surplus - Conversion Rights Retained Earnings Common Shares Cash Debit 428000 12550 3450 82263 1936 82263 Credit 418319 9681 16000 84199
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