On January 1, 2015, when its $30 par value common stock wasselling for $60...

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Accounting

On January 1, 2015, when its $30 par value common stock wasselling for $60 per share, a corporation issued $20 million of 12%convertible debentures due in 10 years. The conversion optionallowed the holder of each $1,000 bond to convert it into sixshares of the corporation’s $30 par value common stock. Thedebentures were issued for $21 million. At the time of issuance,the present value of the bond payments was $18.50 million, and thecorporation believes the difference between the present value andthe amount paid is attributable to the conversion feature. OnJanuary 1, 2016, the corporation’s $30 par value common stock wassplit 3 for 1. On January 1, 2017, when the corporation’s $10 parvalue common stock was selling for $70 per share, holders of 40% ofthe convertible debentures exercised their conversion options. Thecorporation uses the straight-line method for amortizing any bonddiscounts or premiums. Required: 1. Prepare the journal entry torecord the original issuance of the convertible debentures. 2.Prepare the journal entry to record the exercise of the conversionoption, using the book value method.

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a Cash 21000000 Bonds Payable 20000000 Premium on Bonds Payable 1000000 To record issuance of 20000000 of 12 convertible debentures for 21000000 The bonds mature in ten years and each 1000 bond is convertible into six shares of 30 par value See Answer

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In: AccountingOn January 1, 2015, when its $30 par value common stock wasselling for $60 per...On January 1, 2015, when its $30 par value common stock wasselling for $60 per share, a corporation issued $20 million of 12%convertible debentures due in 10 years. The conversion optionallowed the holder of each $1,000 bond to convert it into sixshares of the corporation’s $30 par value common stock. Thedebentures were issued for $21 million. At the time of issuance,the present value of the bond payments was $18.50 million, and thecorporation believes the difference between the present value andthe amount paid is attributable to the conversion feature. OnJanuary 1, 2016, the corporation’s $30 par value common stock wassplit 3 for 1. On January 1, 2017, when the corporation’s $10 parvalue common stock was selling for $70 per share, holders of 40% ofthe convertible debentures exercised their conversion options. Thecorporation uses the straight-line method for amortizing any bonddiscounts or premiums. Required: 1. Prepare the journal entry torecord the original issuance of the convertible debentures. 2.Prepare the journal entry to record the exercise of the conversionoption, using the book value method.