Aubrey Inc. issued $5,345,400 of 9%, 10-year convertible bonds on June 1, 2014,
ID: 2426797 • Letter: A
Question
Aubrey Inc. issued $5,345,400 of 9%, 10-year convertible bonds on June 1, 2014, at 99 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, $2,004,525 of these bonds were converted into 39,500 shares of $18 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.
Explanation / Answer
Working
Interest Accrued at the time of issue = 5345400*9%*2/12 = 80181
Interest to be paid on oct 1 =5345400*9%*6/12
Interest to be paid on oct 1 = $ 240,543
Amortisation of Bond discount = 5345400*1%*6/12* 1/10 = 2672.7
Interest Expenses = Interest to be paid on oct 1 + Amortisation of Bond discount - Interest Accrued at the time of issue
Interest Expenses = 240543+2672.7-80181
Interest Expenses =163034.7
Total Unamortised Bond Discount = 5345400*1% - 2672.7*2 = 48108.60
Unamortised Bond Discount on Bond Converted = 48108.60 * 2004525/5345000
Unamortised Bond Discount on Bond Converted = 18042.075
No Account Title & Explanation Debit Credit a) Interest Expenses 163,034.70 Interest Payable 80181 Discount on Bonds Payable 2672.7 Cash 240543 b) Bonds Payable 2004525 Discount on Bonds Payable 18042 Common Stock 711000 Additional Paid in Capital 1275483Related Questions
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