Please find below table useful to compute desired results: -
Schedule 1
Computation of Unamortized Premium on Bonds Converted | ||
Premium on bonds payable on January 1, 2017 | 1,000,000 | |
Amortization for 2015 | 100,000 | |
Amortization for 2016 | 100,000 | |
200,000 | ||
Premium on bonds payable on January 1, 2017 | 800,000 | |
40% | ||
Bonds converted | 320,000 |
Schedule 2
Computation of Common Stock | ||
Resulting from Conversion | ||
Number of shares convertible on January 1, 2015: | ||
Number of bonds | 20,000 | |
Number of shares for each bond | 6 | |
120,000 | ||
Stock split on January 1, 2016 | 3 | |
360,000 | ||
Bonds Converted | 144,000 | |
Number of shares converted | 10 | |
Par Value | 1,440,000 |
End results would be as follows: -
Date | Account Title and Explanation | Debit | Credit |
1 Jan. 2015 | Cash | 21,000,000 | |
Bonds payable | 20,000,000 | ||
Premium on bonds payable | 1,000,000 | ||
(to record issuance of $20,000,000 of 10% convertible debentures for $21,000,000. The bonds mature in 10 years, and each $1000 bond is convertible into six shares of $30 par value common stock) | |||
1 Jan. 2017 | Bonds Payable(20million*40%) | 8,000,000 | |
Premium on Bonds Payable (Schedule 1) | 320,000 | ||
Common Stock(Schedule 2) | 1,440,000 | ||
Additional Paid-in Capital | 6,880,000 | ||
(to record conversion of 40% of the outstanding 12% convertible debentures after giving effect to the 3-for-1 stock split) |
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