Question

Garr Co. issued $4,194,000 of 12%, 5-year convertible bonds on December 1, 2017 for $4,211,720 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30.

On October 1, 2018, $2,097,000 of these bonds were converted into 28,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.

A) Prepare the entry to record the interest expense at April 1, 2018. Assume that interest payable was credited when the bonds were issued. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,725.)

Date

Account Titles and Explanation

Debit

Credit

b) Prepare the entry to record the conversion on October 1, 2018. Assume that the entry to record amortization of the bond premium and interest payment has been made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date

Account Titles and Explanation

Debit

Credit

Answer 1