On January 1, 2016, Gless Textiles issued $15 million of 8%, 10-year convertible

Question

On January 1, 2016, Gless Textiles issued $15 million of 8%, 10-year convertible bonds at 101 . The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 10% of the issue as an investment. Required: 1. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a transaction/event, seet "No journal entry required" in the first account field. vie ist view general journal view transaction list Journal Entry Worksheet Record the issuance of the bonds by Gless. Date General Journal Debit Credit January 01, 2016 *Enter debits before credits done clear entry record entry

Explanation / Answer

Requirement 2

Gless (Issuer)
Interest expense (Difference)                            592,500
Premium on bonds payable ($150,000 /(10 x 2))                            $7,500
              Cash (8%/2 x $15,000,000) $600,000

                                  

Cash = 101% x $15,000,000= $15,150,000

Less: Face value of Bonds = $15,000,000

Premium on bonds Payable = $150,000

Century (Investor)
Cash (8%/2 x $15,000,000 x 10%)                            $60,000
  Premium on bond investment ($150,000 x 10% / 20)                    $750
   Interest revenue (difference)                                 $59,250

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