Aubrey Inc. issued $4,318,800 of 8%, 10-year convertible bonds on June 1, 2014,

Question

Aubrey Inc. issued $4,318,800 of 8%, 10-year convertible bonds on June 1, 2014, at 97 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $1,619,550 of these bonds were converted into 38,700 shares of $16 par value common stock. Accrued interest was paid in cash at the time of conversion. Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued. Prepare the entry to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made. (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 O for the amounts. Round answers to 0 decimal places, e.g. $3,500.)

Explanation / Answer

Given data Bond purchase value $ 43,18,800 Purchase Price $                 97 No of Bonds bought         44,524 Purchase Date 01-Jun-14 Accrued Interest as on 1-Jun-14 $         59,365 Interest accrued from June to Sept $     1,18,731 Entry to record Interest Given that accrued interest till 1st June 2014 was credited when the bonds were issued Hence we should pass entry for the Balance Interest Accrued i.e., from June to September Interest Accrued A/c Dr     1,18,731        To Interest Payable A/c     1,18,731

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