Greenwood Company sold $4,000,000 of 7% first-mortgage bonds on October 1, 2005, at $3,479,683 plus accrued interest. The bonds were dated July 1, 2005; interest payable semiannually on January 1 and July 1; redeemable after June 30, 2010, to June 30, 2013, at 101, and thereafter until maturity at 100; and convertible into $1 par value common stock as follows: • Until June 30, 2010, at the rate of five shares for each $1,000 bond.
• From July 1, 2010, to June 30, 2013, at the rate of four shares for each $1,000 bond.
• After June 30, 2013, at the rate of three shares for each $1,000 bond.
The bonds mature 10 years from their issue date. The company adjusts its books monthly and closes its books as of December 31 each year.
The following transactions occur in connection with the bonds.
2011
July 1 Converted $1,500,000 of bonds into stock with no gain or loss recognized.
2012
Dec. 31 Reacquired $1,000,000 face value of bonds at 99.75 plus accrued interest. These were immediately retired.
2013
July 1 Called the remaining bonds for redemptions and paid accrued interest. For purposes of obtaining funds for redemption and business expansion, a $3,000,000 issue of 9% bonds was sold at 97. These bonds are dated July 1, 2013, and are due in 20 years.
Instructions:
Prepare journal entries necessary for Greenwood Company in connection with the preceding transactions, including monthly adjustments, where appropriate, as of the following dates. Assume bond discount amortization is made using the straight-line method.
1. October 1, 2005
2. December 31, 2005
3. July 1, 2011
4. December 31, 2012
5. July 1, 2013