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S Co. issued $4,100,000 of 12%, 5-year convertible bonds on December 1, 2020 for $4,122,360 plus...

S Co. issued $4,100,000 of 12%, 5-year convertible bonds on December 1, 2020 for $4,122,360 plus accrued interest. The bonds were dated April 1, 2020 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. S Co. has a fiscal year end of September 30.

On October 1, 2021, $2,050,000 of these bonds were converted into 28,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.

Prepare the entry to record the conversion on October 1, 2021. Assume that the entry to record amortization of the bond premium and interest payment has been made. (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. 5,725.)

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Answer #1

Answer:

Date Particulars Debit ($) Credit ($)
Bonds payable 4,100,000
Premium on bonds payable 9,030
Common stock (28,000*15) 420,000
Paid in capital in excess of par (Bal fig) 3,689,030

Working Notes:

Premium on bonds payable = 4,100,000-4,122,360= 22,360


Total periods = 5*12 = 60 periods
Exipred months = 8 (April 1 to December 1)
Periods remaining = 60-8 = 52 months

Premium related to bonds converted = 22360*2,050,000/4,100,000 = 11,180
Premium amortized related to bonds converted = 11,180/52*10 =2150
Premium unamortized = 11,180-2,150= 9030

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