Question

Your answer is partially correct. Try again. On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Headland Corp. issued $11,500,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation's common stock. The debentures were issued for $12,420,000. The present value of the bond payments at the time of issuance was $9,775,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2017, the corporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2018, when the corporation's $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. (a) Prepare the entry to record the original issuance of the convertible debentures. (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.) Account Titles and Explanation Debit Credit Tcash T 12420000 > Convertible Preferred Stock 11500000 Debt Conversion Expense 920000 (b) Prepare the entry to record the exercise of the conversion option, using the book value method. (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.) Account Titles and Explanation Debit Credit =xF Exa EX FX

Answer 1

a)	Cash	1,24,20,000
	Bonds payable		1,15,00,000
	Premium on bonds payable		9,20,000
b)	Bonds Payable	34,50,000	(11,500,000*30%)
	Premium on bonds payable ( Annexure 1)	2,48,400
	Common Stock ( Annexure 2)		5,17,500
	Paid in capital in excess of Common Stock		31,80,900
	Annexure 1
	Premium on bonds payable		9,20,000
	Amortisation for 2016 (9,20,000/20)	46000
	Amortisation for 2017 (9,20,000/20)	46000	92000
	Premium on bonds payable on jan 1, 2018		8,28,000
	Bonds converted		30%
	Unamortised premium on bonds converted (8,28,000*30%)		2,48,400
	Annexure 2
	Number of shares convertible on Jan 1, 2016
	No of bonds( 11,500,000/1000)	11500
	No of shares for each bond	5	57500	(11500*5)
	Stock split on Jan 1, 2017		*2
	No of shares after the stock split		115000	(57500*2)
	% of bonds converted		30%
	No of shares issued		34500	(115000*30%)
	Par value per share		15
	Total Par value		5,17,500	(34500*15)