Question

Q1: Suppose a Convertible Bond with a Face (i.e., Par) Value of $3,000,000 is issued at Par (i.e., at 100). The Convertible Bonds are repurchased (i.e., repaid) at maturity. When the Convertible Bonds were issued, the Equity component was valued at $1,000,000. The Journal Entry to record the repurchase of the Convertible Bonds at maturity is:

a. Debit: Bonds Payable, $2,000,000. Credit: Cash, $2,000,000

b. Debit: Cash, $3,000,000. Credit: Bonds Payable, $3,000,000

c. None of these answers

d. Debit: Bonds Payable, $3,000,000. Credit: Cash, $3,000,000

e. Debit: Bonds Payable, $1,000,000. Credit: Cash, $1,000,000

Answer 1

When convertible bonds are issued, the Journal entry to record the issue is

Cash account..............................Debit $3,000,000

To Bonds Payable account........Credit $3,000,000

Option 'B' is correct

Debit Cash $3,000,000. Credit Bonds payable, $3,000,000