Problem 16-2

Bond Conversion Expense Bonds Payable Cash Compensation Expense Common Stock Convertible Preferred Stock Debt Conversion Expense Discount on Bonds Payable Income Summary Incremental Cash Insurance Expense Interest Expense Interest Payable Interest Receivable Liability under Stock Appreciation Plan No Entry Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par - Preferred Stock Paid-in Capital-Expired Stock Options Paid-in Capital-Stock Options Paid-in Capital-Stock Warrants Premium on Bonds Payable Preferred Stock Retained Earnings Unamortized Bond Issue Costs Unearned Compensation

Problem 16-2 Indigo Inc. issued $3,000,000 of convertible 10-year bonds on July 1, 2017. The bnds provide for 11% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $56,400, which is being amortized monthly on a straight-line basis The bonds are convertible after one year into 9 shares of Indigo Inc.'s $100 par value common stock for each $1,000 of bonds. On August 1, 2018, $300,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (a) August 1, 2018. (Assume the book value method is used.) (b) August 31, 2018 (c) December 31, 2018, including closing entries for end-of-year. No. Date Account Titles and Explanation Debit Credit (a) Aug. 1, 2018 Bonds Payable Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par-Preferred Stock (To record the issuance of shares of common stock and the write-off of the discount on bonds payable.) Aug. 1, 2018 Interest Expense Cash (To record payment in cash of interest accrued on bonds.) (b) Aug. 31, 2018 To record amortization of discount on bonds.) Aug. 31, 2018 To record accrual of interest on bonds.) (c) Dec. 31, 2018 To close expense account)