On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10 convertible debentures due in 10 years The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporations $30 par value common stock The debentures were issued for $11 million At the time of issuance, the present value of the bond payments was $8 5 million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature On January 1, 2016, the corporations $30 par value common stock was split 3 for 1 On January 1, 2017, when the corporations $10 par value common stock was selling for $90 per share, holders of 40 of the convertible debentures exercised their conversion options The corporation uses the straight line method for amortizing any bond discounts or premiums Required 1 Prepare the journal entry to record the original issuance of the convertible debentures 2 Prepare the journal entry to record the exercise of the conversion option, using the book value method CHART OF ACCOUNTS Corporation General Ledger ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 255 Bonds Payable 256 Premium on Bonds Payable 261 Income Taxes Payable EQUITY 311 Common Stock 315 Additional Paid In Capital 331 Retained Earnings REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 2 3 Prepare the journal entry to record the exercise of the conversion option, using the book value method on January 1, 2017 PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST REF DEBIT CREDIT 1 2 3 4

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Posted on Jul 26, 2024

On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible

On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporations $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments was $8.5 million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2016, the corporations $30 par value common stock was split 3 for 1. On January 1, 2017, when the corporations $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.

Required:

Prepare the journal entry to record the original issuance of the convertible debentures.

Prepare the journal entry to record the exercise of the conversion option, using the book value method.

CHART OF ACCOUNTS

Corporation

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
255	Bonds Payable
256	Premium on Bonds Payable
261	Income Taxes Payable

	EQUITY
311	Common Stock
315	Additional Paid-In Capital
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense