Garr Co. issued $4220000 of 12%, 5 year convertible bonds on December 1, 2017 for $4237830...

Garr Co. issued $4220000 of 12%, 5 year convertible bonds on December 1, 2017 for $4237830 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond Premium is amortized each interest period on a straight line basis. Garr Co. has a fiscal year wnd of September 30.

On October 1, 2018, $2110000 of these bonds were converted into 29000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.

a. Prepare the entry to record the interest expense at April 1, 2018. Assume that interest payable was credited when the bonds were issued.

b. Prepare the entry to record the conversionon October 1, 2018. Assume thtat the entry to record amortization of the bond premium and interest payments had been made.

Solutions

Expert Solution

	in $
Face value of Bond	4220000
Issue price	4237830+ Acured interest
	4322230
Premium	102230
Interest	12%
Term	5Years

Calculation of accured interst till December.
Interest	422000012%/22/6

	84400


Bond premiuim is amortized in straight line basis:

Straight line method	=	Bond premium/no of periods

		102230/5*2
Bond premium, to be amortized:		10223

Entry for interest expense in April 2018:

Interest	422000012%/24/6
	168800

Interest expense A/c	Dr	168800
To Cash			168800

On October 1, 2018, $2110000 of these bonds were converted into 29000 shares of $15 par common stock:

Bonds A/c Dr		2110000
To Shares			435000	(29000*15)
To Share Premium			1675000

ekkarill92 answered 1 year ago

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