Question

On January 1, 2018, when its $30 par value common stock was selling for $80 per share, a corporation issued $20 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into five shares of the corporation's $30 par value common stock. The debentures were issued for $21 million. At the time of issuance, the present value of the bond payments was $18.5 million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2019, the corporation's $30 par value common stock was split 3 for 1. On January 1, 2020, when the corporation's $10 par value common stock was selling for $90 per share, holders of 50% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. Journal entries in 2019 would include: a debit to Discount on Bonds Payable of $1,500,000 ООО a debit to Interest Expense of $2,100,000 a credit to Premium on Bonds Payable of $100,000 a credit to Cash of 2,000,000

Answer 1

Answer- Journal Entries

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Cash	21,000,000
	Premium on bonds payable		1,00,000
	Bonds payable		20,000,000
	(To record the issuance of convertible bonds)