Hi can someone please answer this question?? thank you Additional Problem 5 On J

Question

Hi can someone please answer this question?? thank you

Additional Problem 5

On January 1, 2017, Crane Corporation issued a series of 500 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Crane received $536,000 for the bond issue. The bonds paid interest every December 31 at 4%; the market interest rate for bonds with a comparable level of risk was 3%. The bonds were convertible to common shares at a rate of ten common shares per bond. Craneamortized 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 $313,300 due to a decrease in market interest rates, a conversion inducement of $17/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.

Explanation / Answer

Year Coupon Int(FV*4%) Int.exp.(Carrying Value*3%) Prem. Amort.(Coupon-Int.exp.) Prem.still to be amortised FV BV/CV Comment 1-Jan-17 22899 500000 522899 2017 20000 15687 4313 18586 500000 518586 Regular int.& Prem. Amortsn. Entry Jan 1 2018 100 bonds 3717 100000 1st lot of conversion Jan 1 2018 14869 400000 414869 Jun 30 2018 2000 1556 444 2nd lot of conversion Dec 31 2018 14425 300000 314425 12000 9433 2567 11857 300000 311857 Regular int.& Prem. Amortsn. Entry Jan 1,2019 Final lot of Conversion Calculating the equity portion in the conversion feature offered Total Proceeds received 536000 PV of bonds at 3% Mkt.rate 522899 Equity Premium portion(Total Proceeds-PV) 13101 Journal Entries Debit Credit Jan 1,2017 Cash 536000 Bonds Payable 500000 Premium of bond Payable to be amortised 22899 Share Premium- Conv.-Equity 13101 Dec 31,2017 Interest Expense522899*3% 15687 BondPremium amortised(plug-in) 4313 Cash 20000 (See Table) 1-Jan-18 Bond Payable 100000 Premium om B/P to be amortised (22899-4313)500*100 3717 Share Premium- Conv,Equity13101/5000*1000 2620 Equity share capital(1000 Shares) 100000 Addl.Paid-in capital(plug-in) 6337 Jun 30 2018 Bond Payable 100000 Premium om B/P to be amortised (22899-4313)500*100 444 Share Premium- Conv,Equity13101/5000*1000 2620 Int.exp. Forfeited 1556 Equity share capital(1000 Shares) 100000 Addl.Paid-in capital(plug-in) 4620 31-Dec-18 Interest Expense 9433 Bond Premium amortised 2567 Cash 12000 (See Table) 1-Jan-19 Bond Payable 300000 Premium om B/P to be amortised (22899-4313)500*100 11857 Share Premium- Conv,Equity13101/5000*3000 7861 Conversion Inducement expenses17*300 5100 Loss on conversion(313300-311857) 1443 Equity share capital(3000 Shares) 300000 Addl.Paid-in capital(plug-in) 21161 Cash (17*300) 5100

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