Question

On January 1, 2017, Desert Windows Corporation issued $1,000,000 of 15-year, 12% convertible debentures at 110....

On January 1, 2017, Desert Windows Corporation issued $1,000,000 of 15-year, 12% convertible debentures at 110. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into four shares of Desert Windows Corporation $5 par value common stock after December 31, 2018. On January 1, 2019, $400,000 of the debentures is converted into common stock, which is then selling at $300. An additional $400,000 of the debentures is converted on May 31, 2019. The market price of the common stock is then $310. Accrued interest at May 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.

Required:

Make the necessary journal entries for:

(a) December 31, 2018. (c) May 31, 2019.

(b) January 1, 2019. (d) June 30, 2019.

Record the conversions using the book value method.

Homework Answers

Answer #1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
31-12-2018 INTEREST PAID ON CONVERTIBLE DEBENTURES A/C 60000
TO CASH A/C 60000
31-12-2018 STATEMENT OF PROFIT & LOSS A/C 120000
TO INTEREST PAID ON CONVERTIBLE DEBENTURES A/C 120000
31-12-2018 BOND PREMIUM AMORTIZED A/C 6667
TO STATEMENT OF PROFIT & LOSS A/C 6667
01-01-2019 DEBENTURES A/C 400000
TO SHARE CAPITAL A/C 8000
TO SECURITIES PREMIUM A/C 392000
31-05-2019 INTEREST PAID ON CONVERTIBLE DEBENTURES A/C 20000
TO INTEREST PAYABLE A/C 20000
31-05-2019 DEBENTURES A/C 400000
TO SHARE CAPITAL A/C 8000
TO SECURITIES PREMIUM A/C 392000
30-06-2019 INTEREST PAYABLE A/C 20000
INTEREST PAID ON CONVERTIBLE DEBENTURES A/C 12000
TO CASH A/C 32000
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