(Entries for Conversion, Amortization, and Interest of Bonds) Volker Inc. issued $2,500,000 of convertible 10-year bonds on...

Question:

(Entries for Conversion, Amortization, and Interest of Bonds) Volker Inc. issued $2,500,000 of convertible 10-year bonds on July 1, 2010. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Volker Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2011, $250,000 of bonds was turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion any accrued interest on bonds being converted is paid in cash.

(Round to nearest dollar) Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates.

(a) August 1, 2011. (Assume the book value method is used.)

(b) August 31, 2011.

(AICPA adapted)

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Bonds
When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...