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Problem 16-02 Your answer is partially correct. Try again. Carla Inc. issued $2,760,000 of convertible 10-year bonds on July 1, 2020. The bonds provide for 13% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $58,800, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 9 shares of Carla Inc.'s $100 par value common stock for each $1,000 of bonds. On August 1, 2021, $276,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (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.) (a) August 1, 2021. (Assume the book value method is used.) (b) August 31, 2021. (c) December 31, 2021, including closing entries for end-of-year. No. Date Account Titles and Explanation Debit Credit (a) Aug. 1, 2021 Bonds Payable Discount on Bonds Payable Common Stock Paid-in Capital in Excess of (To record the issuance of shares of common stock and the write-off of the discount on bonds payable.) Aug. 1, 2021 Interest Payable Cash (To record payment in cash of interest accrued on bonds.)

Answer 1

No.	Date	Account titles and explanation	Debit	Credit
(a)	Aug. 1, 2021	Bonds payable	276000
		Discount on bonds payable (58800/10*107/120)		5243
		Common stock (276*9*100)		248400
		Paid-in capital in excess of par		22357
		(To record the issuance of shares of common stock and the write-off of the discount on bonds payable)
	Aug. 1, 2021	Interest payable (276000*13%*1/12)	2990
		Cash		2990
		(To record payment in cash of interest accrued on bonds)
(b)	Aug. 31, 2021	Interest expense (58800*90%)*1/120	441
		Discount on bonds payable		441
		(To record amortization of discount on bonds)
	Aug. 31, 2021	Interest expense (2760000-276000)*13%*1/12	26910
		Interest payable		26910
		(To record accrual of interest on bonds)
(c)	Dec. 31, 2021	Income summary	349485
		Interest expense		349485
		(To close expense account)

Unamortized discount on bonds payable
Amount to be amortized over 120 months	58800
Amount of monthly amortization ($58800 / 120)	490
Amortization for 13 months to Jul 31, 2021, ($490 × 13)	6370
Balance unamortized Jul 31, 2021, (58800-6370)	52430
Less: 10% applicable to bonds converted	5243
Balance Aug 1, 2021	47187
Remaining monthly amortization over remaining 107 months	441

Amortization of bond discount charged to bond interest expense in 2015 would be as follows:

7 months × $490	3430
5 months × $441	2205
Total	5635

Interest on bonds:

$2,760,000 × 13.00%	358800
Amount per month ($358800 / 12 months)	29900
13% on (2760000-276000)	322920
Amount per month ($322920 / 12 months)	26910
Interest for 2021 would be as follows:
7 months × $29900	209300
5 months × $26910	134550
Total	$343850

Total interest
Amortization of discount	5635
Cash interest paid	343850
Bond interest expense	$349485