Question

Exercise 16-5

The December 31, 2017, balance sheet of Kepler Corp. is as follows.

10% callable, convertible bonds payable (semiannual interest    dates April 30 and October 31; convertible into 6 shares of $25      par value common stock per $1,000 of bond principal; maturity date April 30, 2023)		$500,000
Discount on bonds payable		10,240		$489,760

On March 5, 2018, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to common stock as of the interest payment date. Consequently, on April 30, Kepler Corp. paid the semiannual interest and issued shares of common stock for the bonds. The discount is amortized on a straight-line basis. Kepler uses the book value method.

Prepare the entries to record the interest expense and conversion on April 30, 2018. Reversing entries were made on January 1, 2018. (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.)

Account Titles and Explanation	Debit	Credit
(To record interest expense.)
(To record the conversion.)

Answer 1

Answer is given below

$10,240 Discount on bonds payable - 31st Dec 2017 Remaining months to amortize Discount amortization per month 64 $160 Discount for 6 months Interest on Bonds Total Interest expense $960 $25,000 ($500,000*10%)/12*6 $25,960) Credit Date April 30 2018 Debit $25,960 Account Titles and explanation Interest Expense To Discount on issue on bonds To Cash (To record interest expense) $960 $25,000 Credit Debit $500,000 Date Account Titles and explanation April 30 Bonds payable 2018 To Discount on issue on bonds To Common stock To Paid in capital in excess of par (To record conversion) $9,600 $75,000 (500*6*$25) $415,400 Discount balance on April 30th Balance as on December 31 2017 Discount amortized for 4 months Balance as on April 30th $10,240 $640 $9,600