Question

On January 1, 2016, Gless Textiles issued $17 million of 10%, 20-year convertible bonds at 101....

On January 1, 2016, Gless Textiles issued $17 million of 10%, 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 20% of the issue as an investment.
Required:
1.

Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century.(Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2.

Prepare the journal entries for the June 30, 2020, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3.

On July 1, 2021, 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). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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Homework Answers

Answer #1

(A)

Date Account titles and Explanation Debit ($) Credit ($)
January 01, 2016 Cash 17170000
Convertible bonds payable 17000000
Premium on bonds payable 170000
January 01, 2016 Investment in convertible bonds 3400000
Premium on bond investment 34000
Cash 3434000

(B)

Date Account titles and Explanation Debit ($) Credit ($)
June 30, 2020 Interest expense 845750
Premium on bonds payable 4250
Cash 850000
June 30, 2020 Cash 170000
Premium on bond investment 850
Interest revenue 169150

(C)

Date Account titles and Explanation Debit ($) Credit ($)
July 01, 2021 Convertible bonds payable 3400000
Premium on bonds payable 24650
Common stock 3424650
July 01, 2021 Investment in common stock 3424650
  Investment in convertible bonds 3400000
Premium on bond investment 24650
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