Exercise 16-2 No. Account Titles and Explanation Debit Credit (a) (b) Exercise 1

Question

Exercise 16-2

No.

Account Titles and Explanation

Debit

Credit

(a)

(b)

Exercise 16-2

Aubrey Inc. issued $3,752,400 of 10%, 10-year convertible bonds on June 1, 2014, at 98 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, $1,407,150 of these bonds were converted into 30,800 shares of $15 par value common stock. Accrued interest was paid in cash at the time of conversion.
(a) Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued. (b) 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 0 for the amounts. Round answers to 0 decimal places, e.g. $3,500.)

No.

Account Titles and Explanation

Debit

Credit

(a)

Interest Expense

Interest Payable

Discount on Bonds Payable

Cash

(b)

Bonds Payable

Discount on Bonds Payable

Common Stock

Paid-in Capital in Excess of Par - Common Stock

Explanation / Answer

Ans

Details Debit Credit Calculation Interest Expense     1,28,832.40 3752400*10%*4/12+3752400*2/100/20 Interest Payable        62,540.00 3752400*10%*2/12 Discount on Bonds Payable        3,752.40 3752400*2/100/20 Cash 1,87,620.00 Bonds Payable 14,07,150.00 Discount on Bonds Payable      25,328.70 1407150*2/100*18/20 Common Stock 4,62,000.00 Paid-in Capital in Excess of Par - Common Stock 9,19,821.30

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