Question

On January 1, 2021, Madison Products issued $41.9 million of 8%, 10-year convertible bonds at a net price of $42.89 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison's no par common stock. Madison records interest by the straight-line method. On June 1, 2023, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2023. By June 30, all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted Required: 1. & 2. Prepare the journal entries for the issuance of the bonds by Madison and interest payment for June 30, 2021 3. Prepare the journal entries for the June 30, 2023, interest payment by Madison and the conversion of the bonds (book value method). Complete this question by entering your answers in the tabs below. Reg 1 and 2 Reg 3 Prepare the journal entries for the issuance of the bonds by Madison and interest payment for June 30, 2021. (if no antry is required for a transaction/event, select "No journal entry required in the first account held Enter your answers in whole dollars.) View transaction list

Answer 1

Answer -

1. & 2. Answer -

Date	General Journal	Debit	Credit
January 01, 2021	Cash	$42890000
	Convertible bonds payable		$41900000
	Premium on bonds payable		$990000
June 30, 2021	Interest expense	$1626500
	Premium on bonds payable	$49500
	Cash		$1676000

Calculation:

a. January 01, 2021:

Premium on bonds payable:

= Cash - Convertible bonds payable

= $42890000 - $41900000

= $990000

b. June 30, 2021:

1. Cash:

As per given information, Madison Products issued 8%, 10-years convertible bonds. Interest paid semiannually and record by straight line method.

So,

= $41900000 * 8% * (6/12months)

= $1676000

2. Premium on bonds payable:

As per given information, Madison Products issued 10-years convertible bonds or 20 semiannual periods.

= $990000 / 20 semiannual periods.

= $49500

3. Interest expense:

= Cash - Premium on bonds payable

= $1676000 - $49500

= $1626500

3. Answer -

Date	General Journal	Debit	Credit
June 30, 2023	Interest expense	$1626500
	Premium on bonds payable	$49500
	Cash		$1676000
June 30, 2023	Convertible bonds payable	$41900000
	Premium on bonds payable	$742500
	Common stock		$42642500

Calculation:

a. June 30, 2023:

1. Cash:

Interest paid semiannually and record by straight line method.

So,

= $41900000 * 8% * (6/12months)

= $1676000

2. Premium on bonds payable:

As per given information, Madison Products issued 10-years convertible bonds or 20 semiannual periods.

= $990000 / 20 semiannual periods.

= $49500

3. Interest expense:

= Cash - Premium on bonds payable

= $1676000 - $49500

= $1626500

b. June 30, 2023:

1. Premium on bonds payable:

As per given information, Madison Products issued 10-years convertible bonds or 20 semiannual periods.

= $990000 / 20 semiannual periods.

= $49500 per semiannual period

And

= $49500 * 5 semiannual periods (From January 01, 2021 to June 30, 2023)

= $247500

Therefore,

Premium on bonds payable = $990000 - $247500 = $742500

2. Common stock:

= Convertible bonds payable + Premium on bonds payable

= $41900000 + $742500

= $42642500