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Convertible Bonds

Clarkston Inc. issued $1,000,000 of convertible 10-year, 11% bonds on July 1, 2012. The interest is payable semiannually on January 1 and July 1. The discount in connection with the issue was $9,500, which is amortized monthly using the straight-line basis. The debentures are convertible after one year into five shares of the company's $1 par common stock for each $1,000 of bonds.

On August 1, 2013, $100,000 of the bonds were converted. Interest has been accrued monthly and paid as due. Any interest accrued at the time of conversion of the bonds is paid in cash.

Prepare the journal entries on Clarkston's books to record the conversion, amortization, and interest on the bonds as of August 1 and August 31, 2013. On the bond issuance date, it had been at least reasonably possible that the bonds would eventually be converted. If required, round to the nearest dollar. If an amount box does not require an entry, leave it blank.

2013 Aug. 1 Interest Payable Cash Payment of accrued interest on conversion 2013 Aug. 1 Bonds Payable 100000 Discount on Bonds Payable 855 Common Stock (500 shares) 500 Paid-In Capital in Excess of Pal 98645 Conversion of $100,000 of bonds 2013 Aug. 31 Interest Expense scount on Bonds Payable Interest Payable Monthly accrual of interest

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