On January 1, Year 1, Acorn Financial Corp. issued 850 convertible bonds. Each $
ID: 2499450 • Letter: O
Question
On January 1, Year 1, Acorn Financial Corp. issued 850 convertible bonds. Each $1,000 face value bond is convertible into 5 shares of common stock. The bonds have a 10 year term to maturity and pay interest semiannually. Acorn's common stock has a par value of $20.00 per share. The bonds have a stated interest rate of 4% and pay interest semiannually. The convertible bonds were sold for $875,500. Bond issue costs of $50,000 will be subtracted from the bond sale proceeds to be received by Acorn. The bonds were sold to yield a market interest rate of 3%. Acorn will use the effective interest method to amortize the bond discount and/or premium. Round all amounts to the nearest dollar.
Explanation / Answer
A B C D E F G $ Date Interest Payment @2% Interest expenses at 1.5%*G Amortization of Note C-B cr, balance in the a/c Bond Premiun a/c Credit balance in the Bond payable Carrying value of Note F-E Credit cash Debit Interest Expense Debit Bond premium Jan,1 2014 25500 850000 875500 June 30,2014 17000 13133 -3868 21633 850000 871633 Dec,31 2014 17000 13074 -3926 17707 850000 867707 June 30,2015 17000 13016 -3984 13723 850000 863723 Dec,31 2015 17000 12956 -4044 9678 850000 859678 June 30,2016 17000 12895 -4105 5574 850000 855574 Dec,31 2016 17000 12834 -4166 1407 850000 851407 June 30,2017 17000 12771 -1407 0 850000 850000 Total 119000 90678 -25500 69721 Premium is amortized in 3.5 years than the cr balance in bond premium a,c becomes nil