On April 1, 2017 FIRE retired its note payable and on July 1, 2017 the company...

On April 1, 2017 FIRE retired its note payable and on July 1, 2017 the company issued a bond. Bond information Face value $90000 Coupon rate 6.0% Term 9 years Net proceeds $98,000 Interest will be paid semi-annually on December 31 and June 30. At the investor's option, each $2,000 bond is convertible into 50 common shares of the company. Your investigation into similar bond issues showed that had the company issued the debt without the conversion option, the market rate of interest on the bond would have been 8.0% . In accounting for the issuance of the debt, the prior controller debited cash for the full proceeds, credited Bond payable on the balance sheet for the face value, and credited the difference to the income statement (Gain on bond issue). The December 31 interest payment was coded to Interest Expense. What is the journal entry?

Expert Solution

Workings:

Market value of bond assuming no conversion option is available:

Date	Cash Outflows	PVIF @ 4% semiannually	PV of Cash Outflows
31-12-2017	2,700	0.96154	2,596
30-06-2018	2,700	0.92456	2,496
31-12-2018	2,700	0.88900	2,400
30-06-2019	2,700	0.85480	2,308
31-12-2019	2,700	0.82193	2,219
30-06-2020	2,700	0.79031	2,134
31-12-2020	2,700	0.75992	2,052
30-06-2021	2,700	0.73069	1,973
31-12-2021	2,700	0.70259	1,897
30-06-2022	2,700	0.67556	1,824
31-12-2022	2,700	0.64958	1,754
30-06-2023	2,700	0.62460	1,686
31-12-2024	2,700	0.60057	1,622
30-06-2025	2,700	0.57748	1,559
31-12-2025	2,700	0.55526	1,499
30-06-2026	2,700	0.53391	1,442
31-12-2026	2,700	0.51337	1,386
30-06-2027	92,700	0.49363	45,759
Total			78,607

Journal Entry on issuance of convertible bond:

Cash A/c	Dr	98,000
Convertible Bond Payable A/c	Cr		78,607
Share Option (Equity)*	Cr		19,393

*[Value of the equity portion will be the difference between the total proceeds received from the bonds and the present value]

ekkarill92 answered 1 year ago

1-On July 1, 2013, Avery Services issued a long-term note payable for $10,000. It is payable...

1-On July 1, 2013, Avery Services issued a long-term note payable for $10,000. It is payable over a 5-year term in $2,000 installments on July 1 of each succeeding year. Journalize required transactions on July, 1 2013. Journalize required transactions on Dec 31 2013 Journalize required transactions on July 1 2014. Show calculations 2-A $20,000, 3-month, 8% note payable was issued on November 1, 2015. The amount of interest expense recorded in the year 2016 is $

Dreilling Company borrowed $500,500 on January 1, 2017, but issuing a $500,000, 5% mortgage note payable....

Dreilling Company borrowed $500,500 on January 1, 2017, but issuing a $500,000, 5% mortgage note payable. The terms call for annual install payments of $45,500 on December 31. Prepare the journal entries to record the mortgage loan and the first two installment payments. Indicate the amount of mortgage note payable to be reported as a current liability and as a long term liability at December 31, 2017.

Dreiling Company borrowed $500,500 on January 1, 2017, by issuing a $500,500, 5% mortgage note payable....

Dreiling Company borrowed $500,500 on January 1, 2017, by issuing a $500,500, 5% mortgage note payable. The terms call for annual installment payments of $45,500 on December 31. Prepare the journal entries to record the mortgage loan and the first two installment payments. Indicate the amount of mortgage note payable to be reported as a current liability and as a long-term liability at December 31, 2017.

Malty is a national company whose office facilities were ravaged by fire on July 15, 2017....

Malty is a national company whose office facilities were ravaged by fire on July 15, 2017. The following information was retrieved from the remaining (singed) accounting documents. Malty's uses normal job-order costing and its fiscal year-end is September 30. Sept 30, 2016 July 15, 2017 Supplies inventory (direct and indirect materials) $ 130,000 $ 113,000 Work in process inventory 196,000 ? Finished goods inventory 37,000 42,000 Cost of goods sold 632,000 ? Accounts payable for supplies purchased...

Exercise 11-1 C.S. Lewis Company had the following transactions involving notes payable. July 1, 2017 Borrows...

Exercise 11-1 C.S. Lewis Company had the following transactions involving notes payable. July 1, 2017 Borrows $50,000 from First National Bank by signing a 9-month, 8% note. Nov. 1, 2017 Borrows $61,500 from Lyon County State Bank by signing a 3-month, 6% note. Dec. 31, 2017 Prepares adjusting entries. Feb. 1, 2018 Pays principal and interest to Lyon County State Bank. Apr. 1, 2018 Pays principal and interest to First National Bank. Prepare journal entries for each of the transactions

C.S. Lewis Company had the following transactions involving notes payable. July 1, 2017 Borrows $55,000 from...

C.S. Lewis Company had the following transactions involving notes payable. July 1, 2017 Borrows $55,000 from First National Bank by signing a 9-month, 8% note. Nov. 1, 2017 Borrows $66,000 from Lyon County State Bank by signing a 3-month, 6% note. Dec. 31, 2017 Prepares adjusting entries. Feb. 1, 2018 Pays principal and interest to Lyon County State Bank. Apr. 1, 2018 Pays principal and interest to First National Bank. Prepare journal entries for each of the transactions.

A company lost all but $50 of its inventory in a fire on Feb. 22, 2017....

A company lost all but $50 of its inventory in a fire on Feb. 22, 2017. The company’s financial records are listed below: 2015 2016 Net Sales 10,000 12,300 COGS 6,500 7,995 Gross Profit 3,500 4,305 Operating Exp. 2,000 2,500 Net Income 1,500 1,805 For 2017 the company’s records showed beginning inventory of $350, purchases of $500 and purchase returns of $90. Net sales for the first part of the year totaled $1,000. Determine the amount of inventory destroyed in the fire. (You must first calculate the company’s...

Lucky Company borrowed $1,000,000 on December 31, 2017, byissuing $1,000,000, 8% mortgage note payable. The...

Lucky Company borrowed $1,000,000 on December 31, 2017, by issuing $1,000,000, 8% mortgage note payable. The terms call for annual installment payments of $150,000 on December 31.Prepare the journal entries to record the mortgage loan and the first two installment payments.Indicate the amount of mortgage note payable to be reported as a current liability and as a long-term liability at December 31, 2019.

SBS Corporation borrowed $70,000 from the bank on July 1, 2017. The note had a 6...

SBS Corporation borrowed $70,000 from the bank on July 1, 2017. The note had a 6 percent annual rate of interest and matured on April 30, 2018. Interest and principal were paid in cash on the maturity date. Required: A. What amount of interest expense was recognized on the 2017 income statement? Interest Expense $ B. What amount of cash did SBS pay for interest in 2017? Amount of Cash Paid $ C. What amount of total liabilities was reported...

On January 1, 2017, Howard Corporation signed a $500,000, 6%, 5-year mortgage note that is payable...

On January 1, 2017, Howard Corporation signed a $500,000, 6%, 5-year mortgage note that is payable in annual installments of $118,698 every January 1. On December 31, 2017, the unpaid principal balance should be reported as A : a $118,698 current liability and a $381,302 long-term liability. B : a $500,000 current liability. C : a $88,698 current liability and a $411,301 long-term liability. D : a $500,000 long-term liability.

Question