On April 1, 2001, Rowe Tool Company authorized the sale of $5,000,000 of 6% convertible bonds with

Question:

On April 1, 2001, Rowe Tool Company authorized the sale of $5,000,000 of 6% convertible bonds with interest payment dates of April 1 and October 1. The bonds were sold on July 1, 2001, and mature on April 1, 2021. The bond discount totaled $398,200. The bond contract entitles the bondholders to receive 20 shares of $1 par value common stock in exchange for each $1,000 bond. On April 1, 2011, the holders of bonds with total face value of $700,000 exercised their conversion feature. On July 1, 2011, Rowe Tool Company reacquired bonds, face value $600,000, on the open market. The balances in the equity accounts as of December 31, 2010, were Common stock, $1 par, authorized 3 million shares, issued and

Outstanding, 300,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,000

Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400,000

Market values of the common stock and bonds were as follows:

On April 1, 2001, Rowe Tool Company authorized the sale

Instructions:
Prepare journal entries on the issuer's books for each of the following transactions. (Use the straight-line amortization method for the bond discount.)
1. Sale of the bonds on July 1, 2001.
2. Interest payment on October 1, 2001.
3. Interest accrual on December 31, 2001, including bond discount amortization for the six months since the bond issuance.
4. Conversion of bonds on April 1, 2011. (Assume that interest and discount amortization are correctly shown as of April 1, 2011. No gain or loss on conversion is recognized.)
5. Reacquisition and retirement of bonds on July 1, 2011. (Assume that interest and discount amortization are correctly reported as of July 1,2011.)

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... 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,...