On January 1, 2020, Liles Company issued (sold) 900, $1000 par 8% 20 year bonds when the market rate of interest was 5%. Each of these bonds are convertible and can be exchanged for 10 shares of Liles' $50 par common stock. These bonds pay interest on July 1 and January 1 each year.

REQUIRED:

Part 1

a) Make the journal entry Liles makes when it issues the bonds.

b) Make the journal entry Liles makes when it makes its first interest payment July 1, 2020.

c) Make the necessary adjusting entry on December 31st 2020.

Part 2:

On January 2nd 2021, Liles retires the bonds by acquiring them for $904,000. Make the necessary journal entry.

Part 3:

Ignore part 2 for part 3. On January 2nd 2021, the bondholders exchanged their bonds for Liles stock. On January 2nd Liles stock is selling for $145 per share. Make the journal entry when the bonds are converted.