Problem 3

On September 30, 2020, Pivot Co. issued $1 million, 6%, 5-year convertible bonds

maturing on September 30, 2025, with semi-annual coupon payments on March 31 and

September 30. Each $1,000 bond can be converted into 110 no par value common

shares. Gross proceeds on issuance were $1,150,000. Without conversion feature, the

bond would be expected to yield 4% annually.

Pivot's year-end is December 31. On February 22, 2023 the shares of Pivot traded at

$33 each on this day.

Required

a. Determine how Pivot should allocate the $1,150,000 proceeds into its components

b. Prepare the journal entries for fiscal 2020

c. Prepare the journal entry to record the first coupon payment on March 31, 2021

(assuming reversing entries are not used)

d. Prepare the fiscal 2021 year-end entries related to this bond.

e. Prepare the journal entry to record the first coupon payment on March 31, 2022

(assuming reversing entries are not used)