Question

Problem 16-2 Concord Inc. issued $3,120,000 of convertible 10-year bonds on July 1, 2017. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $49,200, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Concord Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2018, $312,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (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.) (a) August 1, 2018. (Assume the book value method is used.) (b) August 31, 2018. (c) December 31, 2018, including closing entries for end-of-year. No. Date Account Titles and Explanation Debit Credit (a) Aug. 1, 2018 (To record the issuance of shares of common stock and the write-off of the discount on bonds payable.) Aug. 1, 2018 (To record payment in cash of interest accrued on bonds.) (b) Aug. 31, 2018 (To record amortization of discount on bonds.) Aug. 31, 2018 (To record accrual of interest on bonds.) (c) Dec. 31, 2018

Answer 1

JOURNAL ENTRIES IN THE BOOKS OF CONCORD Inc.
DATE	PARTICULARS	DEBIT (AMOUNT IN $)	CREDIT (AMOUNT IN $)
1st August 2018	Interest accured on convertible bonds	3120
	Cash / Bank		3120
	(Interest accrued for the period from 1st July to 31st july on $312000 bonds at 12% per annum is paid by cash at the time of conversion)( (312000*12%)/12)
1st August 2018	Convertible bonds	312000
	Profit on conversion of bonds		62400
	Equity		249600
	($ 312000 bonds converted into 8 shares of $ 100 par value for each 1000 bonds) (312000/1000)*8= 2496 shares*100 =249600
1st August 2018	Profit and Loss account	410
	Discount on issue of convertible bonds		410
	( Write off of discount on issue of convertible bonds relating to the bonds converted into common stock) total discount 49200 and hence discount per convetible bond will 49200/ 3120000 = 0.01576 therefore the total discount to be written off per month with regard to the converting stock will be (( 49200 / 3120000)*312000)/12
31st August 2018	Profit and loss account	3690
	Discount on issue of convertible bonds		3690
	( Amortization of discount on bonds on monthly basis for balance bonds after conversion ((49200/3120000)*(3120000-312000))/12)
31st August 2018	Interest on convertible bonds	28080
	Interest accrued on convertible bonds		28080
	( Interest accrued for balance convertible bonds for the month of Aug 2018 after the conversion ) ((3120000-312000)*12%)/12
31st December 2018	Interest on convertible bonds	28080
	Interest accrued on convertible bonds		28080
	( Interest accrued for balance convertible bonds for the month of Dec 2018 after the conversion ) ((3120000-312000)*12%)/12
31st December 2018	Profit and loss account	3690
	Discount on issue of convertible bonds		3690
	( Amortization of discount on bonds on monthly basis for balance bonds after conversion ((49200/3120000)*(3120000-312000))/12)
31st December 2018	Profit and loss account	358800
	Interest on convertible bonds		358800
	( Interest on convertible bonds for the year charged to profit and loss account being closing entries ( interest till the date of conversion from Jan to July 7 months :-3120000 * 12% * 7/12 ) + (interest after the date of conversion from Aug to Dec 5 months :- (3120000 - 312000) *12% * 5/12
31st December 2018	Profit on conversion of bonds	62400
	Profit and loss account		62400
	(Profit on conversion of bonds transferred to profit and loss account as closing entry)