Sheridan Inc. issued $3,240,000 of convertible 10-year bonds on July 1, 2017. Th

Question

Sheridan Inc. issued $3,240,000 of convertible 10-year bonds on July 1, 2017. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $57,600, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Sheridan Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2018, $324,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (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.) (a) August 1, 2018. (Assume the book value method is used.) (b) August 31, 2018. (c) December 31, 2018, including closing entries for end-of-year.

Explanation / Answer

Part a)

The journal entries are provided as below:

_____

Notes:

The calculations relating to journal entry 1 (above) are given as below:

_____

Part b)

The journal entries are prepared as follows:

_____

Part c)

The journal entries are given as below:

_____

Notes:

The calculation of total bond interest expense is given as follows:

Date Account Titles Debit Credit August 1, 2018 Bonds Payable $324,000 Discount on Bonds Payable $5,136 Common Stock (8*324*100) $259,200 Paid-in Capital in Excess of Par [(324,000 - 5,136) - 259,200] $59,664 (To record the issuance of 2,592 shares of common stock in exchange for $324,000 of bonds and write-off the discount on bonds payable) August 1, 2018 Interest Payable (324,000*12%*1/12) $3,240 Cash $3,240 (To record payment in cash of interest accrued on bonds converted)

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