On January 1, 2013, Schmidt Security issued $60 million of 9%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Schmidt's $1 par common stock. Facial Mapping Company purchased 10% of the issue as an investment.

Required:

1. Prepare the journal entries for the issuance of the bonds by Schmidt and the purchase of the bond investment by Facial Mapping.

2. Prepare the journal entries for the June 30, 2015, interest payment by both Schmidt and Facial Mapping assuming both use the straight-line method.

3. On July 1, 2016, when Schmidts common stock had a market price of $33 per share, Facial Mapping converted the bonds it held. Prepare the journal entries by both Schmidt and Facial Mapping for the conversion of the bonds (book value method).