On January 1, 2021, Gless Textiles issued $29 million of 8%,
20-year convertible bonds at 101. The bonds pay interest on June 30
and December 31. Each $1,000 bond is convertible into 40 shares of
Gless’s no par common stock. Bonds that are similar in all
respects, except that they are nonconvertible, currently are
selling at 99 (that is, 99% of face amount). Century Services
purchased 10% of the issue as an investment.
1. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century.
2. Prepare the journal entries for the June 30, 2025, interest payment by both Gless and Century assuming both use the straight-line method.
3. On July 1, 2026, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method).
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