Journal entries for convertible bonds. Higgins Corporation issues $1 million of 20-year, $1,000 face value, 10% semiannual

Question:

Journal entries for convertible bonds. Higgins Corporation issues $1 million of 20-year, $1,000 face value, 10% semiannual coupon bonds at par on January 2, 2008. Each $1,000 bond is convertible into 40 shares of $1 par value common stock. Assume that Higgins Corporation’s credit rating is such that it could issue 15% semiannual, nonconvertible bonds at par. On January 2, 2012, holders convert their bonds into common stock. The common stock has a market price of $45 per share on January 2, 2012.

a. Present the journal entries made under U.S. GAAP on January 2, 2008, and January 2, 2012, to record the issue and conversion of these bonds. Use the carrying value method to record the conversion.

b. Present the journal entries made under IFRS on January 2, 2008, to issue the bonds.

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... GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... 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,...