Question

Exercise 16-06 Your answer is partially correct. Try again. On January 1, 2020, Sandhill Corporation issued $3,960,000 of 10-year, 7% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Sandhill Corporation $100 par value common stock after December 31, 2021. On January 1, 2022, $396,000 of debentures are converted into common stock, which is then selling at $111. An additional $396,000 of debentures are converted on March 31, 2022. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Make the necessary journal entries for: (a) December 31, 2021. (c) March 31, 2022. (b) January 1, 2022. (d) June 30, 2022. Record the conversions using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) No. Date Account Titles and Explanation Credit Debit LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL LLLLLLLLLLLLLLLLL 134600 X (a) Dec. 31, 2021 interest expense Tpremium on bonds payable 40001 T cash 138600 (b) Jan. 1, 2022 022 Tbonds payable 396000 Tpremium on bonds payable 22176 | common stock 316800 T paid-in capital in excess 79200

Answer 1

Date Cash paid @7%/2 of Par Value Interest Expense Carrying Value Amortization of premium (158400/20) Unamortized Premium 1-Jan 30-Jun 31-Dec 30-Jun 31-Dec 1-Jan 31-Mar 138,600 138,600 138,600 138,600 130,680 130,680 130,680 130,680 7,920 7,920 7,920 7,920 158,400 150,480 142,560 134,640 126,720 114,048 110,484 98,208 95,139 4,118,400 4,110,480 4,102,560 4,094,640 4,086,720 62,370 58,806 3,564 4,083,156 55,440 52,371 3,069 4,080,087 30-Jun 59 60 a) 61 Date Account title & explanation 62 Dec.31,2021 Interest expense 63 Premium on Bonds Payable Cash Credit Debit 130,680 7,920 64 138,600

Credit 66 b) 67 Date 68 Jan.1,2022 69 70 Account title & explanation Bonds Payable Premium on Bonds Payable (396000/3960000*126720) Common Stock (396000/1000*8)*100 Paid-in Capital in excess of Par - Common Debit 396,000 12,672 316,800 91,872 Unamortized premium on Jan.1,2022 Less Premium on conversion Balance Premium amortized upto 31st March (114048/8*3/12) Balance Balance applied to converted bonds (396000/(3960000-396000))*110484 126,720 (12,672) 114,048 3,564 110,484 12,276 58,806 3,564 62,370 81 March 31,2022 Interest expense Premium on Bonds Payable 83 Interest Payable 84 (TO record interest expense) 85 86 March 31,2022 Bonds Payable 87 Premium on Bonds Payable Common Stock (396000/1000*8)*100 89 Paid -in Capital in excess of Par - Common (to record conversion) 396,000 12,276 88 316,800 91,476

92 d) 93 June 30,2022 Interest expense 94 Premium on Bonds Payable 95 Interest Payable Cash 97 98 52,371 3,069 62,370 117,810