Convertible Bonds On January 1, 2012, Schmidt Security issued $8 million of 10%,
ID: 2471747 • Letter: C
Question
Convertible Bonds
On January 1, 2012, Schmidt Security issued $8 million of 10%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 25 shares of Schmidt's $1 par common stock. Facial Mapping Company purchased 20% of the issue as an investment. On July 1, 2014, when Schmidt’s common stock had a market price of $30 per share, Facial Mapping converted the bonds it held.
Required:
1. Prepare the journal entries for the issuance of the bonds by Schmidt and the purchase of the bond investment by Facial Mapping.
2. Prepare the journal entries by both Schmidt and Facial Mapping for the conversion of the bonds (book value method).
Explanation / Answer
PART 1
IN THE BOOKS OF SCHMIDT
Bank A/c Dr. $8.16 million
To 10% Bond A/c $ 8 million
To premium on issue of bond A/c $ 0.16 million
(Being bond issued @102 per bond)
IN THE BOOKS OF FACIAL MAPING:
INVESTMENT IN BOND A/c Dr. $1.632 million
To Bank A/c $1.632 million
(being bond purchased as invevstment