Question

On January 1, 2019, Branson Corporation issued $500,000 of convertible bonds at par value. The bonds were issued with a stated interest rate of 3%. Each $1,000 bond is convertible into 20 shares of the corporation’s $1 par value common stock. Branson may also elect to settle bonds with a cash payment in lieu of issuing stock. Similar bonds without the conversion feature would have sold for $455,000.

Required:
Prepare the journal entry for Branson to record the issuance of the convertible bonds.

Answer 1

The Discount on Bonds Payable account is debited for $45,000 to reflect the difference between the par value and the actual cash received.

Step-by-step explanation:

The journal entry to record the issuance of the convertible bonds for Branson Corporation would be as follows:

Debit:

Cash ($500,000)

Debit:

Discount on Bonds Payable ($45,000)

Credit:

Bonds Payable ($500,000)

When the company issued the convertible bonds at par value, it received $500,000 in cash and credited the same amount to the Bonds Payable account. However, because similar bonds without the conversion feature would have sold for $455,000, the company would recognize a discount of $45,000 on the issuance.

Hence, the Discount on Bonds Payable account is debited for $45,000 to reflect the difference between the par value and the actual cash received.

Answer 2

Dr Cash $500,000

Dr Discount on bompnd payable $45,000

Cr Bond payable $500,000

Cr Additional paid in capial - Conversion feature $45,000

Step-by-step explanation:

Preparation of the journal entry for Branson to record the issuance of the convertible bonds.

Based on the information given we were told that the Corporation issued the amount of $500,000 of convertible bonds at par value and as well had Similar bonds that does not have the conversion feature which would have been sold for the amount of $455,000 which means that the journal entry to record the issuance of the convertible bonds will be:

Dr Cash $500,000

Dr Discount on bompnd payable $45,000

($500,000-$455,000)

Cr Bond payable $500,000

Cr Additional paid in capial - Conversion feature $45,000

(To record the issuance of the convertible bonds)