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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