Question - On January 2, 2006, Picard Enterprises issued $2,400,000 of 8 percent, 15-year semiannual coupon bonds to yield 7.5 percent. Each bond is convertible into 40 shares of $15 par common stock, which was trading at $20 per share on the date of the bond issue. The bonds were issued at 106. Without the conversion feature, the bonds would have been issued for 104.5.
On January 3, 2011, all of the bonds were converted into common stock. The market price of the stock was $28 per share on the date of conversion. The issue premium is amortized using the straight-line method.
(1) Provide the journal entry to record issuance of the bonds.
(2) Provide the journal entry to record the conversion of the bonds assuming Picard considers the conversion
(a) not to be a significant culminating transaction.
(b) to be a significant culminating transaction.