Question

Buffalo Inc. issued $3,840,000 of 10%, 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, $1,440,000 of these bonds were converted into 24,000 shares of $21 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 0 for the amounts. Round answers to 0 decimal places, e.g. 5,125.)

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)

Answer 1

в 1 a) 2 Particulars 3 Par Value of Bond payable 4. Less: issuance price of bond payable (3840000*98%) 5 Discount on Bond payable Amount($) 3840000 3763200 76800 6 7 Accrued Interest (3840000*10%*2/12) 64000) 76800 9 Discount on Bond payable 10 Divided by: Number of month remaining 11 12 (10 years * 12 month per year = 120) (120 months -2 months completed = 118) 13 Amortization of discount per month 118 651 14 15 Amortization of discount for 4 months 16 (651*4 ) 18 Cash interest for 4 months (3840000*10%*4/12) 19 Interest expenses 20 21 Cash interest paid (3840000*10%*6/12) 2604 128000 130604 192000 22.

А B C D 1 Credit($) 2 3 Date Particulars 1-Oct-20 Interest payable Interest Expenses Cash Discount on Bond payable Debit($) 64000 130604 192000 2604

A 1 b) 2 Particulars 3 Bond converted 4. Divided by: Issued bond price 5 Percentage of bond redeemed on April 1, 2021 Amount($) 1440000 3840000 37.50% | 6 7 Number of month bond hold by bond holder (June 1, 2020 to April 1, 2020 = 10 months) 8 Discount on Bond payable for bond redeemed (76800*37.50%) 9 Less: Amortized Discount on Bond payable (28800*10/118) 10 Unamortized Discount on Bond payable 11 28800 2441 26359

А Date Particulars Credit($) Debit($) 1440000 1-Apr-21 Bond Payable Discount on Bond payable Common Stock (24000*21) Paid in Capital in excess of par value (Balancing Figure) (1440000-26359-504000) 26359 504000 909641