Illini Company, Inc. Balance Sheet as of 12/31/20X0

Assets Current Assets: Cash 1,500,000 Accounts receivable, net18,000 Inventory50,000 Total current assets 1,568,000 Equipment 90,000 Goodwill 20,000 Total assets $1,678,000

Liabilities and shareholders' equity Shareholders' equity: Common stock, 20,000 shares outstanding, $1 par 20,000 Additional paid-in capital 280,000 Retained earnings 1,378,000 Total shareholders' equity 1,678,000 Total liabilities and shareholders' equity 1,678,000

Note that all additional paid-in capital (APIC) sub accounts (e.g., APIC-options and APIC-treasury stock), if any, are tracked in the Additional paid-in capital account on the Balance Sheet.

Project 2.1 Part 1

On 1/1/20X1, Illini issues 10% bonds dated 1/1/20X1, with a face amount of $60,000. The bonds mature on 12/31/20X4 (4 years). For bonds of similar risk and maturity, the market yield is 8%. Interest is paid semiannually on June 30 and December 31. Illini incurs a total of $2,000 debt issuance costs. After its third interest payment on 6/30/20X2, Illini buys back the bonds on the market for $61,000.

1/1/20X1	Cash		[A]
		Bonds payable		[B]
		Premium on bonds		[C]
		Cash		[D]
6/30/20X1	Interest expense		[E]
	Premium on bonds		[F]
		Cash		[G]
12/31/20X1	Interest expense		[H]
	Premium on bonds		[I]
		Cash		[J]
6/30/20X2	Interest expense		[K]
	Premium on bonds		[L]
		Cash		[M]
6/30/20X2	Bonds payable		[N]
	Premium on bonds		[O]
		Cash		[P]
		Gain		[Q]

Project 2.1 Part 2

On 1/1/20X1, Illini issues $20,000 face amount 10 percent ordinary convertible bonds maturing 12/31/20X3. The bonds are issued at the face amount. Interest is paid semiannually on June 30 and December 31. Each $25 bond can be converted into one share of $1 par common stock of Illini. On 1/1/20X2, half of the convertible bonds are converted into Illinis common stock.

Date	Account Name		Debit	Credit
1/1/20X1	Cash		[A]
		Bonds payable		[B]
6/30/20X1	Interest expense		[C]
		Cash		[D]
12/31/20X1	Interest expense		[E]
		Cash		[F]
1/1/20X2	Bonds payable		[G]
		Common stock		[H]
		APIC		[I]
6/30/20X2	Interest expense		[J]
		Cash		[K]
12/31/20X2	Interest expense		[L]
		Cash		[M]