Question

Problem 16-02 Pina Inc. issued $2,400,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $56,400, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Pina Inc.'s $100 par value common stock for each $1,000 of bonds. On August 1, 2021, $240,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. no entry is required, select "No Entry" for the account titles and enter o for the amounts.) (a) August 1, 2021. (Assume the book value method is used.) (b) August 31, 2021. (c) December 31, 2021, including closing entries for end-of-year. NO. Date Account Titles and Explanation Debit Credit (a) Aug. 1, 2021 (To record the issuance of shares of common stock and the write-off of the discount on bonds payable.) Aug. 1, 2021 (To record payment in cash of interest accrued on bonds.) (b) Aug. 31, 2021 HHHHHHHHH (To record amortization of discount on bonds.) Aug. 31, 2021 (To record accrual of interest on bonds.) (c) Dec. 31, 2021 (To close expense account)

Answer 1

Preparation of journal entries as on the following dates

a. August 1, 2021( assuming the book value method is used)

b. August 31, 2021.

c. December 31, 2021( including closing entries).

Refer to the below images for more detailed solution with calculations.

at @: journal entries (August 1, 2021): Requirement @ credit particulars Debit Bonds payable All or 4 240000 To Discount on Bonds payable (schedule 1) To common Stock To paid in capital in excess of par - Common Stock (Being to record the issuance of 1920 Shares of common Stock in exchange for $240000 bonds y the write oft of the discount on bonds payable). & 500g $ 1920000 $ 4297, vt{ "Lt2 ，： 0 common stock = $240000 x 8 Shares $IOD = 1920, sharex $100 per share = $ 192000 ③ [$ 56400 discant to conversion portion] + [ot] 120 = $5029 0 240000 - $ 5029 - $ 192000 = $42971 $2400 Interest payable Alc. or $2400 To cast alc (Being to record payment in cast of interest accrued on bonds converted as at August 1, 2021) Jy+rf - I 240000 4 • 12+ 1/12 = 8 2400

a Journal entries (August 31, 2001): Requirement particolors Debit credit $423 423 Interest expense ale or To Discount on Bonds payable Atc. (schedule 1) (Being to record amortization of one month's discount on $2160000 [$ 2400000 - $240000] of bords). Worlling: (456400 discount &qo=1.) + (120) = $423 4 21600 Interest expense ale or $21600 To Interest payable Ale (Being to record accrual of interest for August on $ 2160000 of bonds at 12:10] :13 اولیه $ 2160000 x 012 4t = $ 21600 @ Rejoyement @: Journal entries (December 31, 2021): same as August 31, 2021 is the following closing entry : Income Summary Alc or $281405 To Interest expense (schedule 2) $281405 (Being to close expense account)

Working se Schedule & & Monthly Amortization un amortized discount on bonds payable: Amount to be amortiged over 120 months Amount of monthly amortization ($56400 120) Amor taction for 13 months to goly 31, 2021 ($470X13) Balance Chamortiged 7131120 [$ 56400 - $6110] 1090 applicable to debentures bonds converted [$50290710)] Balance August 1, 2021 $ 56400 $ 470 $6110 $50290 45029) & 45261 Remaining months monthly amortizanen over remaining 107 = $ 45261 & 107 months = $423 interest Schedule @ : Interest expense Amortization of bond discount charged to bond expense in 2021 would be as follows: 7 months && 470 = $3290 J months * $ 423 = 82115 Total $5405

Interest on Bonds a 124. on $ 2400000 Amount per month ($288000 = 12) 12 d. on § 2160000 Amount per month (8259200 = 12) 288000 24000 - - 259200 = 21600 Interest for 2021 would be as follows: N 7 months x $ 24000 S months & $21600 Toral = & 168000 = & & 108ooo + $ 276000 Total Interest : Amortigation of discount eash interest paid Bond interest expense & 5405 I 276000 a $281405