Question

On May 1, 2018 Small Inc issued $600,000 of 4% 10 year convertible bonds at 103. Each $1,000 bond is convertible into 20 of Small's common shares. Bonds without conversion feature would have sold at 101. Interest payments for the bonds are made on April 30 each year. (Small's year end). On May 1, 2020 30% of the bonds were converted.

Prepare the journal entries to record the issuance of the convertible bonds on May 1 2018 and the conversion date May 1, 2020

Answer 1

Date	Account title and explanation	Debit	Credit
May 1,2018	Cash [$600,000 x 1.03]	$618,000
	Convertible bonds payable		$600,000
	Premium on bonds payable		$18,000
	[To record issuance of convertible bonds]
May 1,2020	Convertible bonds payable [$600,000 x 30%]	$180,000
	Premium on bonds payable (unamortized)	$4,320
	Common stock		$184,320
	[To record conversion of bonds]

Calculations:

Total premium on bonds payable on converted bonds [$18,000 x 30%]	$5,400
(Less): Premium amortized [$5,400/10 years] x 2 years	($1,080)
Unamortized premium	$4,320