Please show your work so that I can understand what is involved. Volker Inc. iss
ID: 2426684 • Letter: P
Question
Please show your work so that I can understand what is involved.
Volker Inc. issued $4,392,000 of convertible 10-year bonds on July 1, 2014. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $64,800, which is being amortized monthly on a straight-line basis.
The bonds are convertible after one year into 10 shares of Volker Inc.’s $100 par value common stock for each $1,200 of bonds.
On August 1, 2015, $439,200 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash.
Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Explanation / Answer
Volker Inc. Journal Entries Date Particulars Debit Credit Coversion 01/08/2015 Bonds 439200 Common stock ($100 Par Value) 439200 (3660 shares issued to 366 bondholders at the rate of 10 share per bond) Accrued Interest on Bond 01/08/2015 Interest on Bond 4392 Cash 4392 (Interest accrued to 366 bondholders for the month of July-15 paid ($439200 * 12%) / 12 = $4392 ) Amortisation of discount 31/08/2015 Interest on Bond 540 Discount on bonds payable 540 (Discount on bonds $64800 to be amortised for 10 years on Monthly basis) Accrued Interest on Bond 31/12/2015 Interest on Bond 237168 Interest on Bond payable 237168 (Interest accrued to bondholders for the period July 15 to Dec 15 ($3952800 * 12%) / 2 = $237168 ) Amortisation of discount 31/12/2015 Interest on Bond 540 Discount on bonds payable 540 (Discount on bonds $64800 to be amortised for 10 years on Monthly basis)