Question

On February 1, 2011, Woft Inc. issued 10% convertible bonds dated February 1, 2011, with a face amount of $200,000. The bonds sold for $239,588 and mature in 20 years. Each $1,000 bond is convertible into 60 shares of Wolf's $1 par value common stock. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Wolf's fiscal year is the calendar year. Wolf uses the effective interest method of amortization.

1. Prepare the journal entry to record the bond issuance on February 1, 2011

2. Prepare the entry to record interest on July 31, 2011

3. Prepare the necessary journal entry on December 31, 2011

4. On January 1, 2012, 50% of the bonds were converted into common stock. Prepare the necessary journal entry by Wolf for the conversion of the bonds (book value method)

Answer 1

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