Round numbers to nearest whole Number. Additional Problem 5 On January 1, 2017,
ID: 2519420 • Letter: R
Question
Round numbers to nearest whole Number.
Additional Problem 5 On January 1, 2017, Waterway Corporation issued a series of 500 convertible bonds, maturing in five years. The face amount of each bond was $1,000, waterway received $524,000 for the bond issue. The bonds paid interest every December 31 at 5%; the market interest rate for bonds with a comparable level of risk was 4%. The bonds were convertible to common shares at a rate of ten common shares per bond. Waterway amortized bond premiums and discounts using the effective interest method, and the company's year-end was December 31 On January 1, 2018, 100 of the bonds were converted into common shares. On June 30, 2018, another 100 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds. On January 1, 2019, when the fair value of the bonds was $308,600 due to a decrease in market interest rates, a conversion inducement of $21/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 300 bonds were converted into common shares at this time Prepare all required journal entries to record the above transactions. Date Account Titles and Explanation Debit Credit Jan. 1, 2017 Dec. 31, 2017 Jan. 1, 2018 Jun. 30, 2018Explanation / Answer
Date
Accounts titles and explanation
Debit ($)
Credit ($)
01-01-17
Bank
524000
Convertible bonds (500 x 1000)
500000
Premium on issue of bond (524000 - 500000)
24000
(Being convertible bond issued)
31-12-17
Interest (500000 x 5%)
25000
Bank
25000
(Being interest paid on bond)
Profit and loss account
25000
Interest
25000
(Being te interest paid on bond debited in profit and loss account)
Premium on issue of bond (24000 /5)
4800
Profit and loss account
4800
(Being premium on issue of bond amortized)
01-01-18
Convertible bond (500000 x 100/500)
100000
Common stock
100000
(Being 100 bond converted into common stock)
30-06-18
Convertible bond (500000 x 100/500)
100000
Common stock
100000
(Being 100 bond converted into common stock)
31-12-18
Interest (300000 x 5%)
15000
Bank
15000
(Being interest on bond paid)
Profit and loss account
15000
Interest
15000
(Being te interest paid on bond debited in profit and loss account)
01-01-19
Convertible bond (500000 x 300/500)
300000
Premium on conversion (300 x 21)
6300
Common stock
300000
Bank
6300
(Being 300 bond converted into common stock)
Profit and loss account
6300
Premium on conversion (300 x 21)
6300
(Being the premium on conversion debited in profit and loss account)
Date
Accounts titles and explanation
Debit ($)
Credit ($)
01-01-17
Bank
524000
Convertible bonds (500 x 1000)
500000
Premium on issue of bond (524000 - 500000)
24000
(Being convertible bond issued)
31-12-17
Interest (500000 x 5%)
25000
Bank
25000
(Being interest paid on bond)
Profit and loss account
25000
Interest
25000
(Being te interest paid on bond debited in profit and loss account)
Premium on issue of bond (24000 /5)
4800
Profit and loss account
4800
(Being premium on issue of bond amortized)
01-01-18
Convertible bond (500000 x 100/500)
100000
Common stock
100000
(Being 100 bond converted into common stock)
30-06-18
Convertible bond (500000 x 100/500)
100000
Common stock
100000
(Being 100 bond converted into common stock)
31-12-18
Interest (300000 x 5%)
15000
Bank
15000
(Being interest on bond paid)
Profit and loss account
15000
Interest
15000
(Being te interest paid on bond debited in profit and loss account)
01-01-19
Convertible bond (500000 x 300/500)
300000
Premium on conversion (300 x 21)
6300
Common stock
300000
Bank
6300
(Being 300 bond converted into common stock)
Profit and loss account
6300
Premium on conversion (300 x 21)
6300
(Being the premium on conversion debited in profit and loss account)
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