Question

Stonewall Corporation issued $40,000 of 5%, 10-year convertible bonds. Each $1,000 bond is convertible to 10 shares of common stock (par $50) of Stonewall Corporation. The bonds were sold at 105 on January 1, 2020. Required a. Provide the entry for Stonewall Corporation on January 1, 2020, for the bond issuance. b. Provide entries for Stonewall Corporation assuming that the conversion privilege is subsequently exercised immediately after the end of the third year. Assume that at the date of conversion, 30% of any premium or discount has been amortized and the common stock was selling at $250 per share. Use the book value method.

Answer 1

Answer is given below

Book value method Credit Debit $42,000 $40,000 $2,000 5% of $40,000 Date General Journal Jan 1 2020 Cash To Bonds payable To Premium on Bonds payable (To record issue of Bonds for premium) Dec 31, 2022 Bonds payable Premium on Bonds payable To Common stock To Paid in capital - in excess of Par (To record conversion of Bonds into common stock) $40,000 $1,400 $20,000 (40*10*50) $21,400 ($40,000+$1,400 - $20,000) Working note: Total Premium on Bonds Unamortised premium- 70% $2,000 $1,400