Question

A company issued $700,000 of 9%, ten-year convertible bonds on January 1, 2020 at 95, with interest payable July 1 and January 1. Bond discount/premium is amortized semiannually on a straight-line basis. On July 1, 2023, these bonds were converted into common stock. What should be the amount of the unamortized bond discount/premium on July 1, 2023 relating to the bonds converted?

Answer 1

WORKING NOTES :
	Calculation of coupon amount and amortization of Discount per period
	Par Value of the bonds =	$                 700,000
	Issue price of the bond @ 95%	$                 665,000
	Discount on issuance of bonds	$                   35,000
	Coupon rate		9%
	Coupon amount =	$                   63,000
	Half year coupon amount =	$                   31,500
	Life of the Bonds =	10	Years
	Period of the bonds =	20	Period
	Discount on issue of Bonds	$                   35,000
	Divide By		"/" By
	Period of The Bonds	20	Periods
	Discount amortization	$                      1,750	Per Periods
	SOLUTION:
		Date	Interest to be paid in Cash	Interest Expenses	Discount Amortization	Unamortized Premium	Bonds Carrying Value
		Jan .01 2020				$             35,000	$665,000
		July.01 2020	$                   31,500	$33,250	$1,750	$33,250	$666,750
		Jan .01 2021	$                   31,500	$33,250	$1,750	$31,500	$668,500
		July.01 2021	$                   31,500	$33,250	$1,750	$29,750	$670,250
		Jan .01 2022	$                   31,500	$33,250	$1,750	$28,000	$672,000
		July.01 2022	$                   31,500	$33,250	$1,750	$26,250	$673,750
		Jan .01 2023	$                   31,500	$33,250	$1,750	$24,500	$675,500
		July.01 2023	$                   31,500	$33,250	$1,750	$22,750	$677,250
	Answer = Unamortized Bonds Discount as on July 1 . 2023 = $ 22,750