Problem: (Conversion of Bonds) On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2008.
On January 1, 2009, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2009. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date.
Bond premium is amortized on a straight-line basis.
Instructions:
Make the necessary journal entries for:
(a) December 31, 2008. (c) March 31, 2009.
(b) January 1, 2009. (d) June 30, 2009.
Record the conversions using the book value method.