On December 31, 2014, Herndon Corp. issues 5 1/2%, 10-year convertible bonds payable with a maturity value of $4,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 6%. Herndon Corp. amortizes bond discount by the effective-interest method.
Requirements
1. Use the present value function in Excel to calculate the issue price of the bonds.
2. Using Exhibit 9-4 of the bond discount as a model, prepare an effective-interest method amortization table for the term of the bonds.
3. Journalize the following transactions;
a. Issurance of the bonds on Dec. 31,2014. Credit Convertible bonds Payable
b. Payment of interest and amortization of the bond discount on Dec 31,2015
c. Payment of interest and amortization of the bond discount on Dec 31, 2015
d. Conversion by the bondholders on july 1, 2016, of bonds with face value of $1,600,000 into 120,000 shares of Herndon Corp's $1-par common stock.
4. Show how Herndon Corp. would report the remaining bonds payable on its balance sheet at Dec 31, 2016.
Financial Accounting Harrison, Herngren