On January 1, 2017, Kingbird Corporation issued $4,380,000of 10-year,9% convertible debentures at104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000debenture can be converted into8shares of Kingbird Corporation $102par value common stock after December 31, 2018.

On January 1, 2019, $438,000of debentures are converted into common stock, which is then selling at $112. An additional $438,000of debentures are converted on March 31, 2019. The market price of the common stock is then $118. Accrued interest at March 31 will be paid on the next interest date.

Bond premium is amortized on a straight-line basis.

Find the Premium on Bonds Payable amount for journal entry for Jan 1, 2019.

ANSWER:

Step 1: CalculationsTotal premium($4,380,000 0.04)= $175,200

Step 2: Less: Premium amortized ($175,200 2/10) (35,040)

Balance $140,160

Step 3: Bonds converted: ($438,000 $4,380,000)= 10%

Step 4: Related premium ($140,160 10%)= 14,016

*My question is why do they multiply 4,380,000 by 0.04? Where did 0.04 come from?*