On January 1, 2021, MANGO Corp. issues $100 million of convertible bonds at par value.
The bonds have a stated annual interest rate of 6%, pay interest semiannually, and
come due December 31, 2025. The bonds are convertible at any time after issuance at
the rate of 25 shares of common stock for each $1,000 of the face value of the convertible
bonds. Issuance costs total $500,000. The current annual market interest rate for non-
convertible bonds with similar maturity is 8%.
Required:
1 - Prepare the journal entries to record the issuance of the convertible bonds (round to
the nearest dollar).
2 - Determine the amount of expense related to the convertible bonds that the company
should recognize each year (round to the nearest dollar) and prepare the journal entries
for the first year only.