Question

What are the journal entries for the following transaction?

A company entered into a two-year loan of $20,000,000, with a 20% interest rate payable semi-annually April 1 and October 1 with no principal due until maturity. The debt is convertible into shares of common stock at $1.50 per share. The company incurred $1,5000,000 in financing costs, paid to the issuer.

Answer 1

Solution of the above problem is as under:

Date	Particulars and Explanation	Debit ($)	Credit ($)
Apr-01	Bank A/c Dr.	20000000
	To 20% Debt Payable A/c		20000000
	(Being Loan Taken)
Oct-01	Interest Expense A/c Dr.	2000000
	To Interest Payable A/c		2000000
	(Being interest due @ 20% p.a semi-annually)
Oct-01	Interest Payable A/c Dr.	2000000
	To Bank A/c		2000000
	(Being Interest paid)
Apr-01	Interest Expense A/c Dr.	2000000
	To Interest Payable A/c		2000000
	(Being interest due @ 20% p.a semi-annually)
Apr-01	Interest Payable A/c Dr.	2000000
	To Bank A/c		2000000
	(Being Interest paid)
Oct-01	Interest Expense A/c Dr.	2000000
	To Interest Payable A/c		2000000
	(Being interest due @ 20% p.a semi-annually)
Oct-01	Interest Payable A/c Dr.	2000000
	To Bank A/c		2000000
	(Being Interest paid)
Apr-01	Interest Expense A/c Dr.	2000000
	To Interest Payable A/c		2000000
	(Being interest due @ 20% p.a semi-annually)
Apr-01	Interest Payable A/c Dr.	2000000
	To Bank A/c		2000000
	(Being Interest paid)
Apr-01	20% Debt Payable A/c Dr.	20000000
	Debt Financing Cost A/c Dr.	15000000
	To Equity Share Capital A/c		35000000
	(Being 20% Debt converted into 23333334 Equity Shares of FV $1.50 per Share)