Question

Oriole Inc. issued $2,940,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for 13% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $52,800, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Oriole Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2021, $294,000 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. If no entry is required, select "No Entry" for the account titles and enter 0 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.

Answer 1

Working as follows: Percentage of bond converted = Converted bond/Total bond = $294.000/$2.940.000 = 0.1 or 10% Period of Amortization = 10 years * 12 month = 120 months Period Expired = 13 months (1 july 2020 to 31 july 2021) Period of unamortization =(120 - 13) months = 107 months Discount amortized = $52.800 10% 107/120 = $4708 Shares issued = ($294.000/S1000) * 8 = 2352 shares Joumal entries as follows:

Credit No. @ Debit $294,000 Date Account Title Aug 01, 2021 Bond payable Discount on bond payable Common stock (2352 shares x $100) Paid in capital (To record the issuance of shares of common stock and the write-off of the discount on bonds payable.) $4,708 $235,200 $54,092 $3,185 Aug 01, 2021 Interest payable Cash ($294000 x 13% 1/12) (To record payment in cash of interest accrued on bonds.) $3,185 6) $396 Aug 31, 2021 Interest expense ($52800 x 90% x 1/120) Discount on bond payable (To record amortization of discount on bonds.) $396 1/12] $28.665 Interest expense [($2940000-$294000) x 13% Interest payable (To record accrual of interest on bonds.) $28,665 c) $385,690 Dec 31, 2021 Income Summary (W.N) Interest expense (To close expense account) $385,690

W.N
Interest expense for 2021:
Interest paid (before conversion) [$2940000 × 13% × 7/12]	$222,950
After conversion [($2940000-$294000) × 13% × 5/12]	$157,680
Total	$380,630
Amortization discount (before) [$52800 × 7/120]	$3,080
After conversion [$52800 × 90% × 5/120]	$1,980
Total	$5,060
Total interest expense [$380630 + $5060]	$385,690