prepare journal entry for the redemption or conversion of the bonds. Weygandt, F
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Question
prepare journal entry for the redemption or conversion of the bonds.
Weygandt, Financial & Managerial Accounting, 2e Help I System Announcements PRINTER VERSIONBACK NI Exercise 10-12 Presented below are three independent situations. 1. Longbine Corporation redeemed $132,200 face value, 11% bonds on June 30, 2017, at 107, The carrying value of the bonds at the redemption date was $119,200. The bonds pay annual interest and the interest payment due on June 30, 2017, has been made and recorded. Tastove Inc. redeemed $145,000 face value, 18% bonds on June 30, 2017, at 94. The carrying value of the bonds at the redemption date was $148,000. The bonds pay annual interest, and the interest payment due on June 30, 2017, has been made and recorded. Precision Company has $85,000, 500, 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on December 31 of each year. The bonds are convertible into 30 shares of Precision $20 par value common stock for each $1,000 worth of bonds. On December 31, 2017, after the bond interest has been paid, $15,000 face value bonds were converted. The market price of Precision common stock was $49 per share on December 31, 2017. 2. 3. For each independent situation above, prepare the appropriate journal entry for the redemption or conversion of the bonds. (Credit account titles are automatically indented when ameyat isExplanation / Answer
(i)
Face value
$ 132,200
11% bonds redemption price
$ 107
carrying value
$ 119,200
annual interest payable on
30/06/2017
unamortised discount
$ 13,000
(132200-119200)
Interest payable
$ 7,271
(132200*11%*6/12)
Number of Bonds
1,322
(132200/100)
Redemption premium
$ 9,254
(1322*(107-100))
Date
Particulars
Debit
Credit
30/06/2017
Premium on Redemption A/c
$ 9,254
Bonds Payable A/c
$ 119,200
To Bank A/c
$ 128,454
(Being Bonds redeemed at premium)
30/06/2017
Interest expense A/C
$ 7,271
To Bank A/c
$ 7,271
(Being Interest paid upto 30/06/2017)
30/06/2017
Discount on Issue of Bonds A/c
$ 13,000
To Un amortised Disount A/c
$ 13,000
(Being unamortised disount amount is written off)
(ii)
Face value
$ 145,000
18% bonds redemption price
$ 94
carrying value
$ 148,000
annual interest payable on
30/06/2017
unamortised premium
$ 3,000
(148000-145000)
Interest payable
$ 13,050
(145000*18%*6/12)
Number of Bonds
1,450
(145000/100)
Discount on Redemption
$ 9,254
(1450*(100-94))
Date
Particulars
Debit
Credit
30/06/2017
Bonds Payable A/c
$ 148,000
To Discount on Redemption A/c
$ 9,254
To Bank A/c
$ 138,746
(Being Bonds redeemed at discount
30/06/2017
Interest expense A/C
$ 13,050
To Bank A/c
$ 13,050
(Being Interest paid upto 30/06/2017)
30/06/2017
Un amortised Premium A/c
$ 3,000
To Premium on Issue of Bonds A/c
$ 13,000
(Being unamortised premium amount is recognised)
(iii)
5%, 12 year convertible bonds outstanding
$ 85,000
Annual Interest payable on
31 st December
Interest payable
$ 4,250
(85000*5%)
For $1000 worth bonds
30shares @ $20
Market price of common stock on Dec 31st
$ 49 per share
Face Value of Bonds Converted
$ 15,000
Par value of common share for redemption of Bonds worth $15000
$ 9,000
(15000/1000*30*20)
Excess value of common shares over par value of shares
$ 13,050
(15000/1000*30*29)
Loss on conversion of bonds
$ 7,050
(15000-15000/1000*30*49)
Date
Particulars
Debit
Credit
31st Dec
Bonds Payable A/c
$ 15,000
Loss on conversion of Bonds
$ 7,050
To Common Shares
$ 9,000
To Contribute Capital - Common Stock
$ 13,050
(Being bonds are converted into common stock)
31st Dec
Interest expense A/C
$ 4,250
To Bank A/c
$ 4,250
(Being Interest paid for the year)
(i)
Face value
$ 132,200
11% bonds redemption price
$ 107
carrying value
$ 119,200
annual interest payable on
30/06/2017
unamortised discount
$ 13,000
(132200-119200)
Interest payable
$ 7,271
(132200*11%*6/12)
Number of Bonds
1,322
(132200/100)
Redemption premium
$ 9,254
(1322*(107-100))
Date
Particulars
Debit
Credit
30/06/2017
Premium on Redemption A/c
$ 9,254
Bonds Payable A/c
$ 119,200
To Bank A/c
$ 128,454
(Being Bonds redeemed at premium)
30/06/2017
Interest expense A/C
$ 7,271
To Bank A/c
$ 7,271
(Being Interest paid upto 30/06/2017)
30/06/2017
Discount on Issue of Bonds A/c
$ 13,000
To Un amortised Disount A/c
$ 13,000
(Being unamortised disount amount is written off)
(ii)
Face value
$ 145,000
18% bonds redemption price
$ 94
carrying value
$ 148,000
annual interest payable on
30/06/2017
unamortised premium
$ 3,000
(148000-145000)
Interest payable
$ 13,050
(145000*18%*6/12)
Number of Bonds
1,450
(145000/100)
Discount on Redemption
$ 9,254
(1450*(100-94))
Date
Particulars
Debit
Credit
30/06/2017
Bonds Payable A/c
$ 148,000
To Discount on Redemption A/c
$ 9,254
To Bank A/c
$ 138,746
(Being Bonds redeemed at discount
30/06/2017
Interest expense A/C
$ 13,050
To Bank A/c
$ 13,050
(Being Interest paid upto 30/06/2017)
30/06/2017
Un amortised Premium A/c
$ 3,000
To Premium on Issue of Bonds A/c
$ 13,000
(Being unamortised premium amount is recognised)
(iii)
5%, 12 year convertible bonds outstanding
$ 85,000
Annual Interest payable on
31 st December
Interest payable
$ 4,250
(85000*5%)
For $1000 worth bonds
30shares @ $20
Market price of common stock on Dec 31st
$ 49 per share
Face Value of Bonds Converted
$ 15,000
Par value of common share for redemption of Bonds worth $15000
$ 9,000
(15000/1000*30*20)
Excess value of common shares over par value of shares
$ 13,050
(15000/1000*30*29)
Loss on conversion of bonds
$ 7,050
(15000-15000/1000*30*49)
Date
Particulars
Debit
Credit
31st Dec
Bonds Payable A/c
$ 15,000
Loss on conversion of Bonds
$ 7,050
To Common Shares
$ 9,000
To Contribute Capital - Common Stock
$ 13,050
(Being bonds are converted into common stock)
31st Dec
Interest expense A/C
$ 4,250
To Bank A/c
$ 4,250
(Being Interest paid for the year)
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