Question

On January 1, 2008 Roller Bearing Corporation issued $6,000,000 of 10 year 6% convertible bonds at 104.

Interest is paid semiannually on June 30th and December 31st each year. Each $1,000 of bonds can be converted into 12 shares of $45 par value common stock after December 31, 2011

On January 1, 2012, $1,800,000 of bonds are converted into common stock that was now selling for $60 per share.

Required: Prepare journal entries for each of following dates.

a. December 31, 2011

b. January 1, 2012

Answer 1

Journal entries:--

Date	Particular	Debit	Credit
a. 31December,2011	Interest expenses	180,000
	Cash		180,000
	(For the payment of interest semiannually)
b. 1 January,2012	Bonds Payable	1,800,000
	Common stock (21,600×$45)		972,000
	Paid-in-excess of par value		828,000
	(For the conversion of bonds)
	Cash (21,600×$60)	1,296,000
	Common stock (21,600×$45)		972,000
	Additional paid-in-capital		324,000
	(For the sale of common stock)

Calculating no.of shares:---

No.of Shares = 12 × 1,800,000/1,000 = 21,600 Shares

Calculating interest on Bonds Payable:--

Interest=6,000,000 ×6 /100 =$360,00

Interest is paid semiannually,so Interest on 31December,2011 =360,000/2 =$180,000