Convertible Bonds
Iron Works Inc. issued $12,000,000 of 4%, 10-year bonds on September 1, 2017 for $11,896,605 plus accrued interest. The bonds were dated February 1, 2017 with interest payable February 1 and August 1. Bond discount is amortized each interest period on a straight-line basis. Iron Works has a fiscal year end of July 31.
On August 1, 2018, Iron Works converted $4,000,000 of these bonds into 50,000 shares of $20 par common stock. Accrued interest was paid immediately before the conversion.
Instructions: Prepare all entries from the date of issue through February of 2019. Assume Interest Payable was credited when the bonds were issued (round to the nearest whole dollar). Hint: the issuing company does not owe any interest if the bonds are not sold.