Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1,

Question

Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1, 2014 at 96.1 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, $800,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. 1. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2014?

The first step of calculation should be (4000000-3844000)/117

where did 3844000 and 117 came from?

Explanation / Answer

Bond Details Amt $ Bond Face value        4,000,000 Bond Issue Price @96.1%        3,844,000 Discount on Bond              156,000 Life of bond   10 year Life of bond in months                    120 Life of bond after issue                    117 Amortization of Bond discount per month=(4000000-3844000)/117 So in calculation of amortization of bond discount per month , the mentioned data came. As the Bond issued after 3 months of actual   issue date, the time remaining for   damortization of discount is 117 months.

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