On January 1, 2017, Larkspur Corporation issued $4,020,000 of 10-year, 8% conver
ID: 2597987 • Letter: O
Question
On January 1, 2017, Larkspur Corporation issued $4,020,000 of 10-year, 8% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Larkspur Corporation $100 par value common stock after December 31, 2018. On January 1, 2019, $402,000 of debentures are converted into common stock, which is then selling at $110. An additional $402,000 of debentures are converted on March 31, 2019 . The market price of the common stock is then 114. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Make the necessary journal entries for: (a) December 31, 2018. (c) March 31, 2019. (b) January 1, 2019.(d June 30, 2019. Record the conversions using the book value method. (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. Round answers to o decimal places, e.g. 5,275.)Explanation / Answer
DATE
DETAILS
$
DEBIT
A/C
CREDIT
A/C
2017
ISSUE OF DEBEBNTURE @104
4180800
CASH
JAN 1
4020000
DEBENTURES
160800
PREMIUM ON DEBENTURES
2018
DEC 31
INTEREST $4020000 X 8%/2= $160,800
160800
DEB INTEREST
ACCRUED INTEREST
DEC 31
AMORTIZATION OF PREMIUM
16080
PREMIUM ON DEBENTURES
AMORTIZATION OF
PREMIUM EXPENSE
2019
MAR 31
3,618,000 X8%/12 X 3MTHS
= $72360
(JAN 1 TO MAR 31)
72360
DEB INTEREST
ACCRUED INTEREST
JAN 1
ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES
3216 shares @$110 = $353,760
353760
CASH
321600
COMMON STOCK
21160
EXCESS OF PAR
JUN 30
3,216,000 X 8 %/12 X
3 MTHS
= $64,320 ( 1 APR TO JUN 30)
64320
DEB INTEREST
ACCRUED INTEREST
MAR
31
ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES
= 3216 shares @$114 $366,624
366624
CASH
321600
COMMON STOCK
42024
EXCESS OF PAR
WORKINGS
$4,020,000 ISSUED AT $104 = $4,180,800
PREMIUM = $160800
AMORTIZED 160800/LIFE OF DEBENTURES (10 YEARS) = $16,080 for 10 years
$4,020,000 X 8% = $ 321,600
BI ANNUALY JUN 30 AND DEC 31 @ $ 160,800 EACH date till dec 31, 2018
DATES
JAN 1 2019
DEBENTURES
4,020,000
DEB INTEREST
ISSUE OF SHARES
PAR VALUE OF SHARES
EXCESS OF PAR
-402000
=3216 shares
@$110
$353,760
$321,600
$32,160
3,618,000
X8%/12 X 3MTHS
= $72360
MAR 31 2019
-402000
= 3216 shares
@$114
$366,624
$321,600
$42,024
3,216,000
X 8 %/12 X
3 MTHS
= $64,320
$136,680
DATE
DETAILS
$
DEBIT
A/C
CREDIT
A/C
2017
ISSUE OF DEBEBNTURE @104
4180800
CASH
JAN 1
4020000
DEBENTURES
160800
PREMIUM ON DEBENTURES
2018
DEC 31
INTEREST $4020000 X 8%/2= $160,800
160800
DEB INTEREST
ACCRUED INTEREST
DEC 31
AMORTIZATION OF PREMIUM
16080
PREMIUM ON DEBENTURES
AMORTIZATION OF
PREMIUM EXPENSE
2019
MAR 31
3,618,000 X8%/12 X 3MTHS
= $72360
(JAN 1 TO MAR 31)
72360
DEB INTEREST
ACCRUED INTEREST
JAN 1
ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES
3216 shares @$110 = $353,760
353760
CASH
321600
COMMON STOCK
21160
EXCESS OF PAR
JUN 30
3,216,000 X 8 %/12 X
3 MTHS
= $64,320 ( 1 APR TO JUN 30)
64320
DEB INTEREST
ACCRUED INTEREST
MAR
31
ALLOCATION OF COMMON STOCK SHARES FOR CONVERSION OF $402,000 DEBENTURES
= 3216 shares @$114 $366,624
366624
CASH
321600
COMMON STOCK
42024
EXCESS OF PAR