Question

On January 1, 2018, Fowl Products issued $77 million of 7%, 10-year convertible bonds at a net price of $78.3 million. Fowl recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 25 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method.
  
On June 1, 2020, Fowl notified bondholders of its intent to call the bonds at face value plus a 2% call premium on July 1, 2020. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Fowl paid the semiannual interest and issued the requisite number of shares for the bonds being converted.

Required:
1. Prepare the journal entry for the issuance of the bonds by Fowl.
2. Prepare the journal entry for the June 30, 2018, interest payment.
3. Prepare the journal entries for the June 30, 2020, interest payment by Fowl and the conversion of the bonds (book value method).

Answer 1

	Accounts Title	Dr	Cr
1)	Cash	78300000
Event 1	Convertible Bonds Payable (77000000*97/100)		74690000
	Equity-Conversion option (bal fif)		3610000
2)	Interest expenses	154000
Event 1	Convertible Bonds payable (231000/20 period)	115500
	Cash (7700000*3.5%)		269500
	Discount on Bonds Payable (77000000-74690000)	2310000
3)
Event 1	Interest expenses	154000
	Convertible Bonds payable (231000/20 period)	115500
	Cash (7700000*3.5%)		269500
2)	Convertible Bonds payable	75267500
	Equity-Conversion Option	3610000
	Common Stock		78877500
	working
	Convertible Bonds payable	74690000
	Add: Amortization for 5 period (115500*5)	577500
	Balance at converiosn	75267500
	If any doubt please comment