Issuance of Convertible Bonds
Joy Insurance decides to finance expansion of its physical facilities by issuing convertible debenture bonds. The terms of the bonds follow: maturity date 10 years after May 1, 20Y1, the date of issuance; conversion at option of holder after two years; 20 shares of $1 par value stock for each $1,000 bond held; interest rate of 12% and call provision on the bonds of 102. The bonds were sold at 101.
1. Give the entry on Joy's books to record the sale of $900,000 of bonds on July 1, 20Y1; interest payment dates are May 1 and November 1. If an amount box does not require an entry, leave it blank.
2. Assume the same condition as in (1) except that the sale of the bonds is to be recorded in a manner that will recognize a value related to the conversion feature. The estimated sales price of the bonds without the conversion feature is 98. If an amount box does not require an entry, leave it blank.