Question

Hartwell Corporation completed two bond issuances in 2017 to raise cash in anticipation of constructing a...

Hartwell Corporation completed two bond issuances in 2017 to raise cash in anticipation of constructing a new building sometime in the near future. The 1st bond issuance occurred on January 1, 2017, when Hartwell issued $2,000,000 of 12%, 10-year convertible bonds when the market rate of interest for similar bonds was 10% for an issue price of $2,249,243.20. Interest is paid semiannually on June 30th and December 31st. Each $1,000 bond is convertible into 300 shares of Hartwell Corporation’s, $2 par value common stock. Hartwell uses the effective interest method to amortize the bond premium. On January 1, 2020, $1,000,000 worth of bonds were converted into common stock when the market value of the stock was $9. On December 31, 2021, the remaining bonds were retired by Hartwell, at a price of $1,600,000.

The second bond issuance also occurred on January 1, 2017, when Hartwell Corporation issued $5,000,000 of 6%, 10-year bonds with detachable stock warrants at a price of 102. The bonds pay interest semiannually on June 30th and December 31st. Each $1,000 bond carries 20 warrants. Each warrant allows the holder to buy 1 share of Hartwell Corporation’s $2 par value common stock for $10. Just after the bonds were issued, the bonds were quoted at 98 ex rights and each individual warrant was quoted at $2. On January 1, 2021, (when the stock was trading for $11), 5000 warrants were exercised. Hartwell used the straight-line method of amortizing any premium or discount on these bonds.

Required:

Prepare the journal entry to record the issuance of the 12% convertible bonds issued on January 1, 2017.

Prepare an amortization table for the life of the 12% convertible bonds issued on January 1, 2017.

Prepare the journal entries for the interest payments made on the 12% convertible bonds in 2017.

Prepare the journal entry made on January 1, 2020 when the 12% convertible bonds are converted, assuming (a) the book value method was used and (b) the market value method was used.

Prepare the journal entry made on December 31, 2021 when the remaining 12% convertible bonds are retired.

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Please refer amortization table for values given in journal entry. Everything is mentioned on the pictures.

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