Garr Co. issued $4,149,000 of 12%, 5-year convertible bonds on December 1, 2014 for $4,166,530 plus accrued interest. The bonds were dated April 1, 2014 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30.
On October 1, 2015, $2,074,500 of these bonds were converted into 29,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.
Instructions
(a) Prepare the entry to record the interest expense at April 1, 2015. Assume that interest payable was credited when the bonds were issued (round to nearest dollar).
(b) Prepare the entry to record the conversion on October 1, 2015. Assume that the entry to record amortization of the bond premium and interest payment has been made.
Solution CH 16
(a) Interest Payable
Interest Expense......................................................
Premium on Bonds Payable
Cash
Calculations:
Issuance price
Par value
Total premium
Months remaining
Premium per month
Premium amortized
(b) Bonds Payable
Premium on Bonds Payable
Common Stock
Paid-in Capital in Excess of Par
Calculations:
Premium related to conversion of the bonds
Less premium amortized
Premium remaining