On January 1, 2017, Larkspur Corporation issued $4,020,000 of 10-year, 8% conver

Question

On January 1, 2017, Larkspur Corporation issued $4,020,000 of 10-year, 8% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Larkspur Corporation $100 par value common stock after December 31, 2018. On January 1, 2019, $402,000 of debentures are converted into common stock, which is then selling at $110. An additional $402,000 of debentures are converted on March 31, 2019 . The market price of the common stock is then 114. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Make the necessary journal entries for: (a) December 31, 2018. (c) March 31, 2019. (b) January 1, 2019.(d June 30, 2019. Record the conversions using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to o decimal places, e.g. 5,275.)

Explanation / Answer

DATE

DETAILS

$

DEBIT

A/C

CREDIT

A/C

2017

ISSUE OF DEBEBNTURE @104

4180800

CASH

JAN 1

4020000

DEBENTURES

160800

PREMIUM ON DEBENTURES

2018

DEC 31

INTEREST $4020000 X 8%/2= $160,800

160800

DEB INTEREST

ACCRUED INTEREST

DEC 31

AMORTIZATION OF PREMIUM

16080

PREMIUM ON DEBENTURES

AMORTIZATION OF

PREMIUM EXPENSE

2019

MAR 31

3,618,000    X8%/12 X 3MTHS

= $72360

(JAN 1 TO MAR 31)

72360

DEB INTEREST

ACCRUED INTEREST

JAN 1

ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES

3216 shares            @$110            = $353,760

353760

CASH

321600

COMMON STOCK

21160

EXCESS OF PAR

JUN 30

3,216,000    X 8 %/12 X

3 MTHS

= $64,320 ( 1 APR TO JUN 30)

64320

DEB INTEREST

ACCRUED INTEREST

MAR

31

ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES

= 3216 shares         @$114            $366,624

366624

CASH

321600

COMMON STOCK

42024

EXCESS OF PAR

WORKINGS

$4,020,000 ISSUED AT $104 = $4,180,800

PREMIUM = $160800

AMORTIZED 160800/LIFE OF DEBENTURES (10 YEARS) = $16,080 for 10 years

$4,020,000 X 8% = $ 321,600

BI ANNUALY JUN 30 AND DEC 31 @ $ 160,800 EACH date till dec 31, 2018

DATES

JAN 1 2019

DEBENTURES

4,020,000

DEB INTEREST

ISSUE OF SHARES

PAR VALUE OF SHARES

EXCESS OF PAR

-402000

=3216 shares

@$110

$353,760

$321,600

$32,160

3,618,000

X8%/12 X 3MTHS

= $72360

MAR 31 2019

-402000

= 3216 shares

@$114

$366,624

$321,600

$42,024

3,216,000

X 8 %/12 X

3 MTHS

= $64,320

$136,680

DATE

DETAILS

$

DEBIT

A/C

CREDIT

A/C

2017

ISSUE OF DEBEBNTURE @104

4180800

CASH

JAN 1

4020000

DEBENTURES

160800

PREMIUM ON DEBENTURES

2018

DEC 31

INTEREST $4020000 X 8%/2= $160,800

160800

DEB INTEREST

ACCRUED INTEREST

DEC 31

AMORTIZATION OF PREMIUM

16080

PREMIUM ON DEBENTURES

AMORTIZATION OF

PREMIUM EXPENSE

2019

MAR 31

3,618,000    X8%/12 X 3MTHS

= $72360

(JAN 1 TO MAR 31)

72360

DEB INTEREST

ACCRUED INTEREST

JAN 1

ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES

3216 shares            @$110            = $353,760

353760

CASH

321600

COMMON STOCK

21160

EXCESS OF PAR

JUN 30

3,216,000    X 8 %/12 X

3 MTHS

= $64,320 ( 1 APR TO JUN 30)

64320

DEB INTEREST

ACCRUED INTEREST

MAR

31

ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES

= 3216 shares         @$114            $366,624

366624

CASH

321600

COMMON STOCK

42024

EXCESS OF PAR

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