Please show your work so that I can understand what is involved in getting the a
ID: 2426647 • Letter: P
Question
Please show your work so that I can understand what is involved in getting the answer.
Aubrey Inc. issued $4,425,000 of 9%, 10-year convertible bonds on June 1, 2014, at 97 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.
On April 1, 2015, $1,659,375 of these bonds were converted into 34,300 shares of $15 par value common stock. Accrued interest was paid in cash at the time of conversion.
Explanation / Answer
(a)
Journal entry to record the interest expense at October 1, 2014
Date
Accounts / Explanations
Debit
Credit
Oct. 1, 2014
Interest Expense = 6637.50 + 199125 =
$ 205,762.50
Discount on Bonds Payable (Amortization)
$ 6,637.50
Cash = (4425000*9%*6/12)
$ 199,125.00
(Being semiannual interest expense recorded )
Workings:
Issue price of Bonds = 4425000*97/100 =
$ 4,292,250.00
Add: Accrued interest (From April 1 to May 31) = 4425000*9%*2/12 =
$ 66,375.00
Total Issue price of Bonds
$ 4,358,625.00
Face value of bonds
$ 4,425,000.00
Discount on issue of bonds = 4425000 - 4292250 =
$ 132,750.00
Semiannual Amortization of Discount = 132750 / (10 years *2)
$ 6,637.50
(b)
Journal entry to record the conversion on April 1, 2015
Date
Accounts / Explanations
Debit
Credit
Bonds Payable
$ 1,659,375.00
Discount on Bonds Payable (balance) = 1659375 *119475 / 4425000
$ 44,803.13
Common Stock (34300 Shares * $15)
$ 514,500.00
Paid in excess of par common stock = (1659375-44803.13-514500) =
$ 1,100,071.88
(Being bonds converted into common stock)
Workings:
Balance in Discount on Bonds Payable as on April 1, 2015 = 132750 - (6637.50*2)
$ 119,475.00
(a)
Journal entry to record the interest expense at October 1, 2014
Date
Accounts / Explanations
Debit
Credit
Oct. 1, 2014
Interest Expense = 6637.50 + 199125 =
$ 205,762.50
Discount on Bonds Payable (Amortization)
$ 6,637.50
Cash = (4425000*9%*6/12)
$ 199,125.00
(Being semiannual interest expense recorded )
Workings:
Issue price of Bonds = 4425000*97/100 =
$ 4,292,250.00
Add: Accrued interest (From April 1 to May 31) = 4425000*9%*2/12 =
$ 66,375.00
Total Issue price of Bonds
$ 4,358,625.00
Face value of bonds
$ 4,425,000.00
Discount on issue of bonds = 4425000 - 4292250 =
$ 132,750.00
Semiannual Amortization of Discount = 132750 / (10 years *2)
$ 6,637.50
(b)
Journal entry to record the conversion on April 1, 2015
Date
Accounts / Explanations
Debit
Credit
Bonds Payable
$ 1,659,375.00
Discount on Bonds Payable (balance) = 1659375 *119475 / 4425000
$ 44,803.13
Common Stock (34300 Shares * $15)
$ 514,500.00
Paid in excess of par common stock = (1659375-44803.13-514500) =
$ 1,100,071.88
(Being bonds converted into common stock)
Workings:
Balance in Discount on Bonds Payable as on April 1, 2015 = 132750 - (6637.50*2)
$ 119,475.00