Question

In: Accounting

On January 1st 2018 the Black Panther Company issued (sold) $800,000 10 year 6% bonds to...

On January 1st 2018 the Black Panther Company issued (sold) $800,000 10 year 6% bonds to yield 8%
These bonds pay interest on July 1 and January 1 each year.
Each of these $1000 par bonds could be converted into 20 shares of Black Panther common stock
a)  make the journal entry Black Panther makes when they issue the bonds.  
b)  make the journal entry Black Panther makes when it makes the first interest payment on July 1 2018
c) make the adjusting journal entry Black Panther makes on December 31, 2018
d) make the journal entry Black Panther makes on January 1st 2019 when it makes its second interest payment
e)  On January 2nd 2019 the bondholders converted their bonds into common stock of Black Panther
On January 2nd Black Panther's $5 par stock had a market value of $54.  
Make the Black Panther journal entry when the bonds are converted into common stock  
Instead of converting the bonds; Black Panther retired the bonds on January 2nd 2019 by paying $785,000
What gain or loss did Black Panther show on the retirement of the bonds?
(make sure you tell me if it is a gain or loss)

Solutions

Expert Solution

Par value of bonds 800000
Semi Annual interest (800000*6%*6/12) 24000
Anuity PVF at 4% for 20 periods 13.59033
PVF at 4% for 20th period 0.45639
Present value of maturity value 365112
Present value of interest 326167.9
Issue price 691279.9
Amort chart
Date Cash Int Int expense Discount Unamort Book value
Amortize Discount at beginning
01.01.18 108720 691280
01.07.18 24000 27651 3651 105069 694931
01.01.19 24000 27797 3797 101272 698728
Journal entries:
Date Accounts title and explanation Debit $ Credit $
01.01.18 Cash account Dr. 691280
Discount on bonds payable Dr. 108720
   Bonds payable 800000
01.07.18 Interest expense Ddr. 27651
   Cash account 24000
   Discount on bonds payable 3651
31.12.18 Interest expense Ddr. 27797
    Interest payable 24000
   Discount on bonds payable 3797
01.01.19 Interest payable Dr. 24000
      Cash account 24000
02.01.19 Bonds payable Dr. 800000
     Discount on bonds payable 101272
     Common Stock Capital (800*20*5) 80000
     Additional paid in capital-Common 618728
Or
02.01.19 Bonds payable Dr. 800000
Loss on retirement of bonds Dr. 86272
      Cassh account 785000
      Discount on bonds payable 101272
Loss on retirement of bonds: 86272

ekkarill92 answered 3 years ago
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