Bonds Basics- Straight line method, retirement, and conversion

P.6 Golden Corporation has $20,000,000 of 10.5 percent, 20-year bonds dated June 1, 2010, with interest payment dates of May 31 and November 30. After 10 years of bonds are callable at 104, and each $1,000 bond is convertible into 25 shares of $20 par value common stock. The company's fiscal year ends on December 31. It uses the straight -line method to amortize bond premiums or discounts.

2. Assume the bonds are issued at 97 on June 1, 2010.

a. How much cash is received?

b. How much is Bonds Payable?

c. What is the difference between a and b called and how much is it?

d. With regard to the bond interest payment on November 30, 2010: (1) How much cash is paid in interest? (2)How much is the amortization? (3) How much is interest expense?

4. Assume the issue price in requirement 2 and that the bonds are converted to common stock 10 years later.

a. Is there a gain or a loss in the conversion, and if so, how much is it?

b. How many shares of common stock are issued in exchange for the bonds?

c. In dollar amounts, how does this transaction affect the total liablilities and the total stockholders' equity of the company? In your answer, show the effects of four accounts.

Financial and Managerial Accounting Edition 9 Chapter 10 P.6