Question

nstructions Chart of Accounts General Journal structions on January 1, 2015, when its 530 par value common stock was selling for $80 per share, a corporation issued $30 million of 10% convertible debentures due in 10 Hears. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation's $30 par value common stock. The debentures were issued for $31 million. At the time of issuance, the present value of the bond payments was $28.50 million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2016, the corporation's $30 par value common stock was split 3 for 1. On January 1, 2017, when the corporation's $10 par value common stock was selling for 590 per share, holders of 40% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums Required: 1. Prepare the journal entry to record the original issuance of the convertible debentures 2. Prepare the journal entry to record the exercise of the conversion option using the book value

Answer 1

Req. 2) Using book value method:

date	Acc. Title	Debit $	Credit $		Calculation
Jan 1,2017	Bonds Payable	12000000			30000000*0.4
	Premium on Bonds Payable	320000			1000000*0.4*8/10
	Common Stock		2160000		(30000000/1000)*0.4*18*10
	Additional Paid-in capital		10160000
	(conversion of 40% of bonds into common stock)