Aubrey Inc. issued $5,345,400 of 9%, 10-year convertible bonds on June 1, 2014,

Question

Aubrey Inc. issued $5,345,400 of 9%, 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, $2,004,525 of these bonds were converted into 42,100 shares of $20 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 0 for the amounts. Round answers to 0 decimal places, e.g. $3,500.)

Explanation / Answer

Details Amt $ Bond Face value                       5,345,400 Bond Issue price                       5,238,492 Discount on Bond                           106,908 Bond Life in months                                   120 Discount Amortization per month                                   891 Interest per month                             40,091 Interest expense per month                             40,981 Bond Accounts April 2015 Bond Papayble Cr Balance                       5,345,400 Bond Discount Dr                         (106,908) Amortization of Discount Cr                             10,691 Book value                       5,249,183 Coversion value                       2,004,525 % of bond face value 37.50% % of discount on bond balance                             36,081 Bonds converted value                       2,004,525 No of share issued                             42,100 Value per share issued                           47.6134 Journal Entry Date Account title Dr$ Cr$ Oct 1.2014. Interest Expense                           122,944 Interest Payable                  120,272 Bond Dicount Payable                       2,673 (interest expense for 3 months) April1 2015. Bonds Payable                       2,004,525 Bond Discount Payable                    36,081 Common Stock                  842,000 Paid in Capital in excess of par              1,126,443

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