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Item 4

Item 4 1.6 points

On January 1, 2021, Gless Textiles issued $10 million of 7%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 15% of the issue as an investment.

Required:
1. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century.
2. Prepare the journal entries for the June 30, 2025, interest payment by both Gless and Century assuming both use the straight-line method.

On January 1, 2021, Gless Textiles issued $10 million of 7%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of less's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 15% of the issue as an investment. Required: 1. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. 2. Prepare the journal entries for the June 30, 2025, interest payment by both Gless and Century assuming both use the straight-line method. 3. On July 1, 2026, when Gless's common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) View transaction list Journal entry worksheet < 1 2 > Record the issuance of the bonds by Gless. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2021

3. On July 1, 2026, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method).

Answer 1

1)

Date	General Journal	Debit($)	Credit($)
Jan. 1 ,2021	Cash [10,000,000 * (101/100)]	10,100,000
	Convertible Bonds payable		10,000,000
	Premium on issue of bonds (10,000,000*1%)		100,000
	(issuance of bonds by Gless)
Jan.1,2021	Investment in convertible bonds (10,000,000*15%)	1,500,000
	Premium on bond investment (100,000*15%)	15,00
	Cash		1,515,000
	(purchase of bond investment by Century)

2)

Date	General Journal	Debit($)	Credit($)
June30,2025	Interest Expense (350,000-2,500)	347,500
	Premium on isuue of bonds (100,000/40)	2,500
	Cash [10,000,000*7%*(6/12)]		350,000
	(interest payment by Gless)
June30,2025	Cash [350,000 * 15%]	52,500
	Interest Revenue (52,500 - 375)		52,125
	Premium on bonds investment (15,000/40)		375
	(interest received by Century)

3)

Date	General Journal	Debit($)	Credit($)
July1,2026	Convertible bonds payable (10,000,000*15%)	1,500,000
	Premium on issue of bonds [100,000-(2,500*11)]*15%	10,875
	Common Stock (1,500,000+10,875)		1,510,875
July1,2026	Investment in common stock	1,510,875
	Investment in convertible bonds		1,500,000
	Premium on bonds investment		10,875