On December 1, 2020, Progressive Corp. issued $5,000,000 (par value), 12%, 5-year convertible bonds for $5,026,000...

On December 1, 2020, Progressive Corp. issued $5,000,000 (par value), 12%, 5-year
convertible bonds for $5,026,000 plus accrued interest. The bonds were dated April 1, 2020
with interest payable April 1 and October 1. If the bonds had NOT been convertible, they
would have sold for $5,006,000. The bond premium/discount is amortized each interest
period on a straight-line basis. Progressive does NOT value the equity component at zero.
Progressive’s fiscal year end is September 30.
On October 1, 2021, half of these bonds were converted into 35,000 no par common shares.
Accrued interest was paid in cash at the time of conversion.

Required
a. Prepare the entry to record the interest expense at April 1, 2021. Assume that interest
payable was credited when the bonds were issued (round to nearest dollar).
b. Prepare the entry to record the conversion on October 1, 2021. Use the book value
method. Assume that the entry to record amortization of the bond premium/discount
and interest payment has been made.

Solutions

Expert Solution

Requirement 1:

Dr. Interest Expense $ 149,654.00

Dr. Premium on Bonds Payable $ 346.00

Dr. Interest Payable $ 150,000.00

Cr. Cash $ 300,000.00

To record interest on bond.

Requirement 2:

Dr. Bonds Payable $ 2,500,000.00

Dr. Premium on Bonds Payable $ 2,481.00

Dr. Share Premium - Bond Conversion $ 10,000.00

Cr. Common Stock $ 2,512,481.00

Explanation:

Solution and Explanation:

ekkarill92 answered 1 year ago

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