Question

Problem 15-4A On December 31, 2017, Belagio Holdings Ltd. issues 6 percent, 10-year convertible bonds with a maturity value of $6,000,000. The semi-annual interest dates are June 30 and December 31. The market interest rate is 5 percent and the issue price of the bonds is 107.79458. Belagio Holdings Ltd, amortizes any bond premium and discount by the effective interest method. Chapter 15 LO

Answer 1

ans 1
Date	Interest paid	Interest expenses T*3%	Discount amortized	Unamortised amt	Carrying value
Dec 31 2017				467675	6467675
June 30 2018	150000	194030	44030	423645	6423645
Dec 31 2018	150000	192709	42709	380935	6380935
June 30 2019	150000	191428	41428	339507	6339507
		Total	128168
		Total
Interest paid=6000000*2.5%		150000
Ans 2
	Accounts Title	Dr	Cr
a)	Cash	6467675
	Premium on Bonds payable		467675
	Convertible Bonds Payable		6000000
b)
June 30 2018	Interest expenses	194030
	Premium on Bonds payable		44030
	Cash		150000
c)	Interest expenses	192709
Dec 31 2018	Premium on Bonds payable		42709
	Cash		0
d)
2-Jul	Convertible Bonds Payable	3000000
	Premium on Bonds payable	169754
	Cash (3000000/100*104)		3120000
	Gain on retirement bonds		49754
Date	Interest paid	Interest expenses T*3%	Discount amortized	Unamortised amt	Carrying value
Dec 31 2017				233837	3233837	(3000000/100*107.79458
June 30 2018	75000	97015	22015	211822	3211822
Dec 31 2018	75000	96355	21355	190468	3190468
June 30 2019	75000	95714	20714	169754	3169754
		Total	64084
e)
2-Jul	Convertible Bonds Payable	3000000
	Premium on Bonds payable	113169
	Common stock		3113169
Date	Interest paid	Interest expenses T*3%	Discount amortized	Unamortised amt	Carrying value
Dec 31 2017				155892	2155892	(2000000/100*107.79458
June 30 2018	50000	64677	14677	141215	2141215
Dec 31 2018	50000	64236	14236	126978	2126978
June 30 2019	50000	63809	13809	113169	2113169
		Total	42723
3)	Balance Sheet
	Long term liabilities
	Bonds payable	$1,000,000
	Add: Premium on Bonds payable	56585	$1,056,584.53
Date	Interest paid	Interest expenses T*3%	Discount amortized	Unamortised amt	Carrying value
Dec 31 2017				77946	1077946	(1000000/100*107.79458
June 30 2018	25000	32338	7338	70607	1070607
Dec 31 2018	25000	32118	7118	63489	1063489
June 30 2019	25000	31905	6905	56585	1056585
		Total	21361
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