Question
On January 1, 2020, Slug Corporation issued $6.9 million of 8%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December
On January 1, 2020, Slug Corporation issued $6.9 million of 8%, 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 $1 par common stock. Fuzz Company purchased 20% of the issue as an investment. On July 1, 2024, Fuzz converted all of its bonds into common stock of Slug. The market price per share for Slug was $41 at the time of the conversion. Both companies use the straight-line method for amortization.
Requirement #1.For the issuance of the bonds:1)how would the issuer record this transactionand 2) how would the investor record this transaction. Record separate journal entries for each side of the transaction.
Requirement #2.Forthe conversion of the bonds to common:1) how would the the issuer record the transaction and 2) how would the investor record the transaction.Prepare separate journal entries for each side of the transaction.
Required 1:
(1)Record the entry for the issuance of the bonds by Slug.
(2)Record the entry for the investment in the bonds by Fuzz.
Required 2:
(1)Record the entry for the conversion by Slug.
(2)Record the exercise of conversion by Fuzz.
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