Question

Instructions On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $350,000 and a book value of $345,000. The interest on these bonds was paid on June 30. When these bonds were issued, each $1,000 bond was convertible into 20 shares of $10 par common stock. To induce conversion, on June 15, 2020, the terms were changed so that each bond was convertible into 22 shares of common stock if the conversion was made within 30 days. All the bonds were converted on July 1, 2020, when the market price of the common stock was $48 per share. Required: Next Level Using the book value method, record the conversion of the bonds on July 1, 2020. GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

Answer 1

Prepare journal entries as follows:

Credit Debit $350,000 $20.000 Date Account Titles and Explnation July. 01. 2020 Bonds payable Bond conversion expense ($1,000*20) Discount on bonds payable Common stock Additional paid-in-capital on common stock (b/f) (To record conversion of bonds) $5,000 $77,000 $288.000

Compute Common Stock as follows: 1 Bonds payable Common Stock - Convertible common share Face value per share No.of convertible bonds $350,000 S1000 -x22 common shares $10 = $77.000 Calculate Discount on bonds payable as follows: Discount on bond payable=Face value-Market value =$350,000-$345,000 =$5,000