Question

On January 1, 2020, Bonita Corporation issued a series of 400 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Bonita received $439,000 for the bond issue. The bonds paid interest every December 31 at 6%; the market interest rate for bonds with a comparable level of risk was 5%. The bonds were convertible to common shares at a rate of ten common shares per bond. Bonita amortized bond premiums and discounts using the effective interest method, and the company’s year-end was December 31. On January 1, 2021, 80 of the bonds were converted into common shares. On June 30, 2021, another 80 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds. On January 1, 2022, when the fair value of the bonds was $250,800 due to a decrease in market interest rates, a conversion inducement of $22/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 240 bonds were converted into common shares at this time. Prepare all required journal entries to record the above transactions. (Hint: don’t forget to accrue interest and amortize the premium on the bond at year-end, if needed). (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

On January 1, 2020, Bonita Corporation issued a series of 400 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Bonita received $439,000 for the bond issue. The bonds paid interest every December 31 at 6%; the market interest rate for bonds with a comparable level of risk was 5%. The bonds were convertible to common shares at a rate of ten common shares per bond. Bonita amortized bond premiums and discounts using the effective interest method, and the company's year-end was December 31. On January 1, 2021, 80 of the bonds were converted into common shares. On June 30, 2021, another 80 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds. On January 1, 2022, when the fair value of the bonds was $250,800 due to a decrease in market interest rates, a conversion inducement of $22/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 240 bonds were converted into common shares at this time. Prepare all required journal entries to record the above transactions. (Hint: don't forget to accrue interest and amortize the premium on the bond at year-end, if needed). (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Credit Account Titles and Explanation Cash Debit 439000 Jan. 1, 2020 Bonds Payable 437320 Contributed Surplus - Conversion Rights 1680 Dec. 31, 2020 Interest Expense 21866 Bonds Payable 2134 Cash 24000 Jan. 1, 2021 Bonds Payable 87032 Contributed Surplus - Conversion Rights 336 Common Shares 87368 Jun 30, 2021 Bonds Payable 87032 Contributed Surplus - Conversion Rights 336 Interest Expense Common Shares Dec. 31, 2021 Interest Expense Bonds Payable Cash Jan. 1, 2022 Bonds Payable Loss on Redemption of Bonds Contributed Surplus - Conversion Rights Retained Earnings Common Shares Cash

Answer 1

ANS: Dr Cr

June 30,2021: Bond Payable 87032

Contributed Surplus-Conversion Right 336

Interest Expenses 2611

Common Shares 89979