Question

G1 Corp. issued $50 million subordinated convertible debentures on January 1, 2017 at face value. The debentures pay 5% interest annually and are convertible into 50 common shares for each $1,000 of the bond's face value. At maturity, December 31,2018, G1 Corp. has the option of issuing common shares to redeem the bonds instead of paying cash.

REQUIRED:

Prepare all the journal entries associated with the bond for the year ended December 31, 2018.

Answer 1

Debit $2,500,000 Date Account Titles and Explanation Dec 31, 2018 Interest expense Cash (To record interest expense) Credit 5% of $50 Mn $2,500,000 Date Credit Debit $50,000,000 Account Titles and Explanation Dec 31, 2018 Convertible Debentures Common stock (To record issue of stock) $50,000,000 Working notes: Convertible Debentures Face value Number of Convertible debentures $50,000,000 a 1,000 6 50,000 a/b Number of Equity shares Total equity shares to be issued 50 2,500,000 Credit If Convertible Debentures are redeemed for cash Date Account Titles and Explanation Dec 31, 2018 Convertible Debentures Cash (To record redemption of Debentures) Debit $50,000,000 $50,000,000