Question

On January 1, 2021, Madison Products issued $41.2 million of 8%, 10-year convertible bonds at a net price of $42.12 million. Madison recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method.

On June 1, 2023, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2023. By June 30, all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted.

Required:

1. & 2. Prepare the journal entries for the issuance of the bonds by Madison and interest payment for June 30, 2021.
3. Prepare the journal entries for the June 30, 2023, interest payment by Madison and the conversion of the bonds (book value method).

Answer 1

MADISON COMPANY

J0URNAL ENTRIES-

DATE	PARTICULAR	DEBIT	CREDIT
1,JAN,2021	BANK A/C	42.12
	TO 8%CONVERIBLE BOND A/C		41.2
	TO SECURITIES PREMIUM		0.92
	(ISSUED AT PREMIUM)
1,JAN,2021	BANK A/C	39.964
	DISCOUNT ON ISSUE OF BOND	1,1236
	TO 8%NON-CONVERTIBLE BOND		41.2
	(ISSUED AT DISCOUND)
30,JUN,2021	INTEREST ON BOND A/C	3.296
	TO BANK		3.296
	(PAYMENT OF INTERST FOR CONVERIBLE AND NON CONVERTIBLE)

3)

DATE	PARTICULAR	DEBIT	CREDIT
30,JUN,2023	INTERST ON BOND A/C	3.296
	TO BANK A/C		3.296
	(PAYMENT OF INTERST OF CONVERIBLE AND NON CONVERTIBLE)
30,JUN,2023	8% CONVERTIBLE BOND A/C	41.2
	PREMIUM ON REDEMPTION A/C	0,412
	TO BONDHOLDER A/C		41,612
	(8% NON CONVERTIBLE REDEEMED)
30,JUN.2023	BONDHOLDER A/C DR	41612
	TO SHARE CAPITAL A/C		41612
	(BEING CONVERSION OF BOND INTO SHARE )