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14 July, 10:09

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.

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Answers (1)
  1. 14 July, 10:59
    0
    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
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