On January 1, 2017, Sunland Corporation issued $3,980,000 of 10-year, 8% convert
ID: 341583 • Letter: O
Question
On January 1, 2017, Sunland Corporation issued $3,980,000 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 Sunland Corporation $101 par value common stock after December 31, 2018.
On January 1, 2019, $398,000 of debentures are converted into common stock, which is then selling at $112. An additional $398,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $117. 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:
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 0 decimal places, e.g. 5,275.)
No.
Date
Account Titles and Explanation
Debit
Credit
(a)
(b)
(c)
(To record interest expense)
(To record the conversion)
(d)
(a) December 31, 2018. (c) March 31, 2019. (b) January 1, 2019. (d) June 30, 2019.Explanation / Answer
Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-18 Interest Expense 151,240.00 Premium on Bonds Payable 7,960.00 $159,200 X 1/20 Cash 159,200.00 $3,980,000 X 8% X 6/12 (Record the Interest Paid) 1-Jan-19 Bonds Payable 398,000.00 Premium on Bonds Payable 12,736.00 $159200 X 16/20 X 10% Common Stock 318,400.00 $398,000 / $1,000 X 8 Shares X $100 Paid in Capital in Excess of Par 92,336.00 (record the bonds converted into common stock) 31-Mar-19 Bond Interest Expense 6,962.00 Premium on Bonds Payable 398.00 $7,960 X 10% X 3/6 Bond Interest Payable 7,360.00 $398,000 X 8% X 3/12 (Record the Bonds Interest accrued on bonds converted) 31-Mar-19 Bonds Payable 398,000.00 Premium on Bonds Payable 12,338.00 $159200 X 16/20 X 10% -$398 Common Stock 318,400.00 $398,000 / $1,000 X 8 Shares X $100 Paid in Capital in Excess of Par 91,938.00 (record the bonds converted into common stock) 30-Jun-19 Interest Expense 113,632.00 Premium on Bonds Payable 6,368.00 $101,888 X 1/16 Bond Interest Payable 7,360.00 Cash 127,360.00 $3,184,000 X 8% X 6/12 (Record the Interest Paid) Premium on Bonds Payable: Original Premium 159,200.00 Less: 2017 - Amortization 15,920.00 Less: 2018 - Amortization 15,920.00 Jan 1, 2019 - Write of 12,736.00 Mar 31, 2019 - amortization 398.00 Mar 31, 2019 - Write Of 12,338.00 Balance 101,888.00