Question

Oriole Inc. issued $3,940,000 of 9%, 10-year convertible bonds on June 1, 2020, at 98 plus accrued interest. The bonds were dated April 1, 2020, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2021, $1,477,500 of these bonds were converted into 28,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. (a) Prepare the entry to record the interest expense at October 1, 2020. Assume that accrued interest payable was credited when the bonds were issued. (b) Prepare the entry to record the conversion on April 1, 2021. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made. (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 O for the amounts. Round answers to O decimal places, e.g. 5,125.) No. Account Titles and Explanation Debit Credit (a)

Answer 1

Credit No. Account Titles and Explanation Debit a) Interest Payable ($177,300 * 2/6) $59.100 Interest Expense [($177,300 * 4/6) + $2.671] $120.871 Discount on Bonds Payable Cash ($3.940.000 * 9% * 1/2) (To record the interest expense at october 1, 2020) $2.671 $177,300 Workings: Bond par Value Bond issuance price ($3,940,000 * 0.98) Total discount on Bonds Payable $3,940,000 $3,861,200 $78.800 118 Remaining Months Discount per month ($78.800 / 118) Dicount amortized (5668 * 4 months) $668 $2.671 Credit Debit $1,477,500 No. Account Titles and Explanation b) Bonds Payable Discount on Bonds Payable Common Stock (28,000 shares * $20) Paid-in Capital in Excess of Par (To record the conversion on April 1, 2021) $27,046 $560,000 $890,454 Workings: Discount on Bonds ($78.800 * 3/8) Less: Discount amortized [($29.550 / 118) * 10] Unamortized bond discount $29,550 $2.504 $27.046 $890.454 Paid-in Capital in Excess of Par [$1,477,500 - $560,000 - $27,046]