On January 1, 2018, Gless Textiles issued $23 million of 8%, 20-year convertible
ID: 2583921 • Letter: O
Question
On January 1, 2018, Gless Textiles issued $23 million of 8%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount), Century Services purchased 10% ofthe issue as an investment. Required 1. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. 2. Prepare the journal entries for the June 30, 2022, interest payment by both Gless and Century assuming both use the straight-line method 3. On July 1, 2023, when Gless's common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method)Explanation / Answer
1. Gless (Issuer)
Cash (101% x $23 million).......................................................................23,230,000
Convertible bonds payable (face amount)...........................................23,000,000
Premium on bonds payable (difference)..............................................230,000
Century (Investor)
Investment in convertible bonds (10% x $23 million)..............................2,300,000
Premium on bond investment (difference)................................................23,000
Cash (101% x $2.3 million). 2,323,000
2) June 30 , 2022 Interest expense 914250
Premium on bonds payable (230,000 / 40) 5750
Cash ( 4% X 23 m) 920,000
June 30, 2022 Cash (4% X 2.3m) 92000
Premium on bond investment (23000 / 40) 575
interest revenue 91425
C) July 1, 2033 Convertible bonds payable ( 23X 10%) 2,300,000
Premium on bonds payable (600,000 - (5750 X 11) X 10% 53675
Common stock 2353675
July 1, 2033 Investment in common stock 2353675
Investment in convertible bonds 2300000
Premium on bond investment 53675
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