Question

HW Unit AutoSaver Insert Draw Ô s Page Layout . Formulas Home Data Review View Developer Calibri (Body) BIU = = = 1 EEEE a Wrap Text Merge & Center aA General $ % 2 A72 1 x fc 56 51 Exercise Z Clear Water Corp. issued $100,000 of 7% 5 year convertible bonds on January 1, 2015. The bonds were issued at 104 and pay interest on June 30 and December 31 of each year. By December 31, 2018, the market price of the stock had increased, and the investors decided to convert the bonds into stock. Each $1,000 bond is convertable into 30 shares of the $2 par value common 52 stock. 54 Determine the balance of the Premium on the bonds and prepare the journal entry to record the conversion of the bonds. GENERAL JOURNAL POST REF. Date Account/Description Debit Credit DAN

Answer 1

Ans: Exercise Z

a.) Calculation of Premium on the bonds issued:

Total value of bonds Issued: $1,00,000.

Issue Price each bond of $100: $104

Premium on each bond of $100 is $4

There total premium on bonds issued: 4/100*100000= $4000.

b.) Journal Entries to record the conversion of the bonds:

Date	Account	Ref	Debit (in $)	Credit (in $)
31-12-2018	7% 5 years convertible bonds Dr.	1	100,000
	To Equity Shares Capital (3,000*2)			6,000
	To Security Premium			94,000
	(Being balance of convertible bonds transferred to security premium)

Exercise ZZ: Journal Entries for the entries are as follows:

Date	Account	Ref	Debit (in $)	Credit (in $)
01-Jan-2018	Investment A/c Dr.	1	150,000
	To Bank/Cash ($150,000*97%)			145,500
	To Discount on Bonds			4,500
	(Being 15 Years 9% Bonds purchased at Discount of 3%)
30-Jun-2018	Bank/Cash Dr.	2	6,750
	To Interest Income (150,000*9%*6/12)			6,750
	(Being Interest received for 6 Months)
31-01-2032	Bank/Cash Dr.	3	156,750
	To Interest Income (150,000*9%*6/12)			6,750
	To Investment A/c			1,50,000
	(Being Final Interest received and Investment redeemed)