Butler Company issued $100,000 of convertible bonds for $95,600 on September 1, 2017. Each $1,000 bond...

Butler Company issued $100,000 of convertible bonds for $95,600 on September 1, 2017. Each $1,000 bond is convertible into 30 shares of Butler’s $5 par value common stock beginning on September 1, 2022. On September 1, 2022, holders of 15 bonds converted their bonds into the company’s common stock. The market value of the common stock on the day of conversion was $40 per share, and the unamortized discount on all 100 bonds on the same date was $2,300. 10. On September 1, 2022, make the journal entry to record the conversion, assuming the book value method is used to record the bond conversion. 11. On September 1, 2022, make the journal entry to record the conversion, assuming the market value method is used to record the conversion.

Solutions

Expert Solution

a. 15 bonds holder converted their bonds into the company's common stock. Each $1000 bond is convertible into 30 shares of Butler's $5 par value.

Shares to be issue = 15 x 30 shares

= 450 shares

Value of shares = 450 x 5 = $2250

Unamortized discount for 15 bonds = $2300/100 x 15 = $345

Journal entry to record the conversion, assuming the book value method is used

Bonds Payable A/c Dr. $15,000

Discount on Bonds Payable A/c Cr. $345

Common Stock A/c Cr. $2,250

Additional Paid in Capital A/c Cr. $12,405

APIC is balancing figure.

11. Journal Entry to record the conversion, Assuming the market value method is used to record the conversion

Bonds Payable A/c Dr. $15,000

Loss on Conversion of Bonds A/c Dr. $3,345

Discount on Bonds Payable $345

Common Stock A/c Cr. $2,250

Additional Paid in Capital A/c Cr. $15,750

Common stock = 450 shares x $ 5 per share = $2250

APIC = 450 shares x $35 per share = $15,750

Loss on conversion is balancing figure.

ekkarill92 answered 8 months ago

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