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Western World Inc. issues $30,000,000 of convertible bonds with each $1,000 bond convertible into 15 shares...

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Accounting

Western World Inc. issues $30,000,000 of convertible bonds witheach $1,000 bond convertible into 15 shares of the company’s $1 parcommon stock. The bonds are issued at 102 on January 1, 2019 andpay interest in Jan and July and mature on January 1, 2024. On July1, 2020, 30% of the bonds are converted when the stock price is $80per share and 30% of the bond premium has been amortized.

Record the following transactions:

a. Bond as issuance

b. Conversion of $30,000,000 in bonds to common stock.

Answer & Explanation Solved by verified expert
4.4 Ratings (950 Votes)

Required journal entries are as prepared below:

Year Particulars L.F Debit ($) Credit ($)
2019
a Jan-01 Cash (30,000,000*1.02) 30,600,000
Premium on bonds payable          600,000
Bonds Payable     30,000,000
(For bonds issued at premium)
2020
b Jan-01 Bonds Payable (30,000,000*.3)    9,000,000
Premium on Bonds Payable       126,000
Loss on bonds conversion    1,674,000
Additional paid in capital-common stock (9,000*15*79)     10,665,000
Common Stock (9,000*15*1) 135,000
(For bonds converted into stock)

Working:

Bonds converted into stock
30,000,000*.3    9,000,000
Premium on Bonds converted
600,000*.3 180000
Premium already amortized in 2019
30% of 180,000 54000
Unamortized premium 126000

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