Question

On January 1, 2020, Swifty Corporation issued $4,360,000 of 10-year, 7% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Swifty Corporation $100 par value common stock after December 31, 2021.

On January 1, 2022, $374,000 of debentures are converted into common stock, which is then selling at $111. An additional $374,000 of debentures are converted on March 31, 2022. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date.
Bond premium is amortized on a straight-line basis.
Required:
1. Make the necessary journal entries for:
(a) December 31, 2021. (c) March 31, 2022.
(b) January 1, 2022. (d) June 30, 2022.

Answer 1

Step-by-step explanation:

Issue price of Bonds = 4360000*104%=4534400

Face value of Bonds = 4360000

Premium on bonds = 174400

31-Dec-21

Dr Interest Expense $161,320

Premium on Bond Payable ($1,744,00/20) $8,720

Cash ($4360000*7%/2) $152,600

01-Jan-22

Dr Bond Payable $436,000

Dr Premium on Bond Payable (174400-174400/20*4)*10% $13,952

Dr Common Stock (436000/1000*8*100) $348,800

Cr Paid in capital in excess of par $101,152

31-Mar-22

Dr Interest Expense $7,194

Dr Premium on Bond Payable (13952/8*3/12) $436

Cr Interest Payable (436000*7%/12*3) $7,630

Dr Bond Payable $436,000

Dr Premium on Bond Payable $13,952

Cr Common Stock $348,800

Cr Paid in capital in excess of par $101,152

30-06-2022

Dr Interest Expense $115,104

Dr Premium on Bond Payable (174400*80%)/20 $6,976

Cr Interest Payable $7,360

Cr Cash (4360000*80%*7%/2+7360) $129,440