ISSUER Corp. needed to raise money and, on 01/01/2010 issued $6 million of 8%, 1

Question

ISSUER Corp. needed to raise money and, on 01/01/2010 issued $6 million of 8%, 10-year convertible bonds at 102. The bonds pay interest semiannually on 06/30 and 12/31. Each $1,000 bond is convertible into 40 shares of $1 par common stock. INVESTOR Corp. purchased 20% of the issue as an investment. On 07/01/2014, the market price per share for ISSUER Corp. common was $32, and INVESTOR Corp. converted all of its bonds into common stock. Both companies use the straight-line method for amortization. 1. Make the journal entries for the issuance of the bonds on the issuer and the investor books assuming both companies use the “gross method.” 2. Make the journal entries for the conversion on the books of the issuer and the investor assuming both companies use the “gross method.”

Above is the facts for question 4 but I ONLY just need question 5 answered in GAAP!

1. Make the entries for the issuance of the bonds on the issuer and the investor books assuming both companies use the “net method.”
2. Make the entries for the conversion on the books of the issuer and the investor assuming both companies use the “net method.”

Explanation / Answer

Issue Price= 60*102= 6120

tTotal Premium= 6120-60*100= 120

amortization= 120/10= 12

Interest Exp A/c Dr 228

Amortization A/c Dr 12

To Cash A/c 240

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