Presented below are three independent situations: For each of the independent si

Question

Presented below are three independent situations:

For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) Strike Corporation purchased $380,000 of its bonds on June 30, 2015, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $371,500. The bonds pay annual interest and the interest payment due on June 30, 2015, has been made and recorded. (b) Worton, Inc. purchased $400,000 of its bonds at 96 on June 30, 2015, and immediately retired them. The carrying value of the bonds on the retirement date was $395,000. The bonds pay annual interest and the interest payment due on June 30, 2015, has been made and recorded. (c) Mountain Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Mountain $4 par value common stock for each $1,000 par value bond. On December 31, 2015, after the bond interest has been paid, $30,000 par value of bonds were converted. The market value of Mountain’s common stock was $38 per share on December 31, 2013. Date Account Titles and Explanation Debit Credit (a) June 30 (b) June 30 (c) Dec. 31

Explanation / Answer

Date Particulars Debit($) Credit($)

a. June 30 Bonds payable $380000

Loss on redemption $16100

To discount on bonds payable $8500**

To cash $387600*

* $380000 * 102% = $387600

** $380000 - $371500 = $8500

b. June 30 Bonds payable $400000

To discount on bonds payable $5000

To gain on bond redemption $11000

To cash $384000

c. December 30 Bonds payable $30000

To common stock $4800

To paid in capital in excess of par $25200.

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