Question
In: Accounting
Western World Inc. issues $30,000,000 of convertible bonds with each $1,000 bond convertible into 15 shares...
Western World Inc. issues $30,000,000 of convertible bonds with each $1,000 bond convertible into 15 shares of the company’s $1 par common stock. The bonds are issued at 102 on January 1, 2019 and pay interest in Jan and July and mature on January 1, 2024. On July 1, 2020, 30% of the bonds are converted when the stock price is $80 per share and 30% of the bond premium has been amortized.
Record the following transactions:
a. Bond as issuance
b. Conversion of $30,000,000 in bonds to common stock.
Solutions
Expert Solution
Required journal entries are as prepared below:
| Year | Particulars | L.F | Debit ($) | Credit ($) | |
| 2019 | |||||
| a | Jan-01 | Cash (30,000,000*1.02) | 30,600,000 | ||
| Premium on bonds payable | 600,000 | ||||
| Bonds Payable | 30,000,000 | ||||
| (For bonds issued at premium) | |||||
| 2020 | |||||
| b | Jan-01 | Bonds Payable (30,000,000*.3) | 9,000,000 | ||
| Premium on Bonds Payable | 126,000 | ||||
| Loss on bonds conversion | 1,674,000 | ||||
| Additional paid in capital-common stock (9,000*15*79) | 10,665,000 | ||||
| Common Stock (9,000*15*1) | 135,000 | ||||
| (For bonds converted into stock) |
Working:
| Bonds converted into stock | |
| 30,000,000*.3 | 9,000,000 |
| Premium on Bonds converted | |
| 600,000*.3 | 180000 |
| Premium already amortized in 2019 | |
| 30% of 180,000 | 54000 |
| Unamortized premium | 126000 |
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