8. Convertible Bonds with Beneficial Conversion Option (8 points) On 1/1/2018, G

Question

8. Convertible Bonds with Beneficial Conversion Option (8 points) On 1/1/2018, Golden Bear, Inc. issues $10,000,000 of five-year, 1.5% convertible bonds at par. Each $1,000 bond in the issue converts to 25 shares of $I par value common stock at the option of the bondholder beginning two years after issue. The market price of Golden Bear's common stock on the date of issue is $42 and interest is paid annually each December 31. Assume that half of the bonds were converted on 1/1/2020 and at that date the carrying value (net book value) of the entire issue of convertible bonds is $9,250,000. Required: Prepare the journal entry for issuance of Golden Bear's convertible bonds on 1/1/2018.(4 points) Prepare the journal entry for conversion of half of the convertible bonds on 1/1/2020.(4 points) a. b.

Explanation / Answer

Solution a:

Solution b:

Journal Entries - Golden Bear Inc. Date Particulars Debit Credit 1-Jan-18 Cash Dr ($21,000,000*101%) $10,000,000.00          To Convertible bond payable $10,000,000.00 (To record issue of bond)

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