On January 1, 2017, Waterway Corporation issued $3,680,000 of 10-year, 8% convertible debentures at 102. Interest...

On January 1, 2017, Waterway Corporation issued $3,680,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Waterway Corporation $100 par value common stock after December 31, 2018.

On January 1, 2019, $368,000 of debentures are converted into common stock, which is then selling at $110. An additional $368,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date.

Bond premium is amortized on a straight-line basis.

Make the necessary journal entries for:

(a)		December 31, 2018.		(c)		March 31, 2019.
(b)		January 1, 2019.		(d)		June 30, 2019.

record conversions using the book value method.

Expert Solution

Part A

Date	General journal	Debit	Credit
December 31, 2018	Bonds Interest Expense (balancing figure)	143520
	Premium on Bonds Payable (($3680000 X 2%) X 1/20)	3680
	Cash ($3,680,000 X 8% X 6/12)		147200

Part B

Date	General journal	Debit	Credit
January 1, 2019	Bonds Payable	368,000
	Premium on Bonds Payable	5,888
	Common Stock [8 X $100 X ($368,000/$1,000)]		294400
	Paid-in Capital in Excess of Par (balancing figure)		79,488

Total premium ($3,680,000 X 2%)	73600
Premium amortized($73600 X 2/10)	14720
Balance	58880

Bonds converted ($368,000 ÷ $3,680,000)	10%
Related premium ($58880 X 10%)	5888

Part C

Date	General journal	Debit	Credit
March 31, 2019	Bonds Interest Expense (balancing figure)	7176
	Premium on Bonds Payable ($5888 ÷ 8 years) X 3/12	184
	Bond Interest Payable ($368,000 X 8% X 3/12)		7360

March 31, 2019	Bonds Payable	368000
	Premium on Bonds Payable	5704
	Common Stock		294400
	Paid-in Capital in Excess of Par (Balancing figure)		79304

Premium as of January 1, 2019 for $368,000 of bonds	5888
$5888 ÷ 8 years remaining X 3/12	(184)
Premium as of March 31, 2019 for $368,000 of bonds	5704

Part D

Date	General journal	Debit	Credit
June 30, 2019	Bond Interest Expense (balancing figure)	130125
	Premium on Bonds Payable	2355
	Bonds interest payable (368,000 x 8% x ¼)		7360
	Cash ((1,800,000 x 8%/2)+ 12,000))		125120

[Premium to be amortized: (($368000*16%) X 80%) X 1/20 = $2355]

Total to be paid: (($3680000-$368000-$368000) X 8% ÷ 2) + $7360 = $84,000

ekkarill92 answered 9 months ago

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