Aubrey Inc. issued $4,743,600 of 9%, 10-year convertible bonds on June 1, 2014,

Question

Aubrey Inc. issued $4,743,600 of 9%, 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, $1,778,850 of these bonds were converted into 36,100 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.) Account Titles and Explanation Debit Credit (a) Interest Payable Interest Expense Cash Discount on Bonds Payable (b) Bonds Payable Discount on Bonds Payable Common Stock Paid-in Capital in Excess of Par - Common Stock

Explanation / Answer

Date Accounts Title Dr Cr Oct 1 2014 Interest payable ($213462*2/6 months) $71,154 Interest Expense (213462*4/6)+4824) $147,132 Discount On Bonds Payable $4,824 Cash $213,462 (Being recording of interest expenses) Semi annual Interest 4743600*9%*1/2 213462 Calculation of Discount Par value 4743600 Issue Price ($97) 4601292 Discount on Bond payable 142308 $4743600/100*(100-97) 142308 Months remaining 10*12-2 118 Discount per month (142308/118) 1206 Discount Amortized (1206*4) 4824 April 1 2015 Bonds Payable $1,778,850 Discount on Bond Payable $48,843 Common Stock (36100*$15) $541,500 Paid in Capital In excess of Par-Common Stock $1,188,507 Paid in Capital In excess of Par-Common Stock 1778850-48843-541500 $1,188,507 Calcualtion of Discount on bond payable applicable on convertible portion Ratio of convrtible bond to total bond*Discount related to it 1778850/4743600*142308 53365.5 Less: discount amortized 53365.5/118*10 months 4522.5 Unamortized Discount 48843

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