Question

On January 1, 2021, Madison Products issued $40.7 million of 10%, 10 year convertible bonds at a net price of $41.57 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, al 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)

Answer 1

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Naming convention is not available, can be slightly different: Solution: Credit Date Jan. 01 Debit 41570000 2021 40700000 870000 Jun.30 2021 1991500 43500 2035000 Journal entries Account title and explaination Cash Convertible bonds payable Premium on bonds payable (To record the issuance of convertible bonds) Interest Expense (plug) Premium on bonds payable (870000/20) Cash (40700000*5%) (To record the payment of interest expense) Interest Expense (plug) Premium on bonds payable (870000/20) Cash (40700000*5%) (To record the payment of interest expense) Convertible bonds payable Premium on bonds payable (870000/20)*15 Common Stock - No par (To record the conversion of bonds) Jun.30 2023 1991500 43500 2035000 Jun.30 2023 40700000 652500 41352500