Question

On January 1, 2018, Madison Products issued $40.3 million of 8%, 10-year convertible bonds at a net price of $41.13 million. Madison recently issued similar, but nonconvertible, bonds at 98 (that is, 98% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method.

On June 1, 2020, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2020. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted.

On January 1, 2018, Madison Products issued $40.3 million of 8%, 10-year convertible bonds at a net price of $41.13 million. Madison recently issued similar, but nonconvertible, bonds at 98 (that is, 98% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison's no par common stock. Madison records interest by the straight-line method. On June 1, 2020, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1 2020. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted. Required: 1. & 2. Prepare the journal entry for the issuance of the bonds by Madison and interest payment for the June 30, 2018. 3. Prepare the journal entries for the June 30, 2020, interest payment by Madison and the conversion of the bonds (book value method).

Answer 1

Anscout Page No 0 @ Journal entries On Jap1, 2018, cash - $ 41.13 million = $ 41,130,000 Convertible bonds payable = $40.3million = $40300,000 Premium on bonds payable = $41130,000 - $40300000 = $830,000 On June 30, 2018, Premium on bonds payable = 830,000 = $41500 Cash e 40300,000 X 8% x 5 Fanto June - 6 months = $ 16/2000 Interest expense e 1612000 – 41500 = $1540500

Page.no @ Date Tani, 2018 - Particular cash Convertible bonds payable Premium on bonds payable Interest expense Premium on bonds payable - cash Debit I Gedit $ 41,130,000 - $ 40,300,000 * 830,000 June 30, $1570500 $41500 2018 $1612000 ☺ quinal entries On June 30, 2020, Premium on bonds payable = (830,000) -(41500 x 5iyong = 830,000 - 209500 = $ 622500 Common stock = 40300,000 +622500 = $40922500 Particular Debit I Gredit Interest expense $15,40500 Premium on bonds payable $41506 cash $1612000 June 30, Convertible bonds payable $40300,000 2020 Premium on bonds payable $622500 . Common stock $40922500 Date June 30 2020