Question

Assume XYZ Company issued 2000 bonds with a par value of $100 at a $50,000 total discount. Each bond can be converted to 10 shares of common stock. The common stock has a par value of $1. Prepare the following journal entries:

A. Sale of the bonds

B. Conversion of the bonds when $45000 of the original discount remains unamortized. The firm offered $20000 total to the bondholders as an incentive to convert the bonds.

Answer 1

Journal Entries for sale of Bonds

(A). Bank A/c Dr $150000

To Bonds Application Money A/c $150000

( Being Bonds application money recieved on issue of 2000 Bonds )

Bonds Application Money A/c Dr$150000

Discount on issue of Bonds A/c Dr $50000

To Bonds A/c $200000

(Being 2000 Bonds Issued On discounted Value of @75 )

(b) Bonds A/c Dr $200000

To Discount on issue of bonds A/c 45000

To Bonds Holder A/c $155000

(Being Amount Due on redemption of Bonds)

Bonds Holders A/c $155000

To equity share capital A/c 20000

To Security premium A/c 135000

(being 2000 bonds converted to 20000 equity share capital and issue At premium)

Bonds Holders A/c Dr $20000

To bank A/c $20000

( being incentive issued to bond holders for early conversion)