Question

On January 1, 2019, when its $30 par valve common stock wing for 580 per share, Bridgesort Corp, issued $10,700,000 of convertible debertures due in 20 years. The conversion option allowed the holder of each $1.000 hond to come the band into five shares of the corporation common stock. The debentures were lived for $11.556,000. The present value of the bond payments at the time of issuance was $9.005.000, and the corporation believes the difference between the premu when the corporation's 515 per value common stock was seling for 5135 per shareholders of 0 of the convertible debetures wercised their conversion options. The corporation uses the stone method for amortising any bondscounts account thes and enter for the counts.) C) Preoare the entry to record the originalance of the convertible debentures (Credit account titles are automatically indented when amount is stored. Do not indent manually. If no estry is required, select "No try for the Account Titles and Explanation Det Credit (cash Bonds Payable Premium on Bonds Payable (1) Prepare the entry to record the rise of the conversion option in the book value method (Credit account titles are automatically indented when amount is entered. Do not inden manually. If no entry required select Entry for the account titles and enter for the amounts) Actes and Explanation Debit Crede Bonds Payable Primonds Payat Common Stock

Answer 1

b)

Account Titles and Explanation	Debit($)	Credit($)
Bonds Payable	3,210,000
Premium on bonds payable	231,120
Common Stock		481,500
Paid in capital excess of par -common stock		2,959,620

WORKINGS:

i) Premium on bonds payable:

Premium on bonds payable on January 1,2019 = $856,000

Amortization for 2019 and 2020 [(856,000/20) * 2] = ($85,600)

Premium on bonds payable on January a,2021 = $770,400

Bonds converted = 30%

Premium on bonds payable (30% * $770,400) = $231,120

ii) Common stock (from conversion):

Number of shares convertible in 2019:

Number of bonds (10,700,000 / 1,000) = 10,700

Number of shares for each bond (10,700*5) = 53,500

Stock split on January 1 ,2020 (53,500*2) = 107, 000

Number of shares to be converted after stock split = 107,000

Bonds converted = 30%

Number of shares issued (107,000*30%) = 32,100

Par value per share = $15

Total common stock (par value) [32,100*15] = $481,500