Question 2 [22 points]

On January 31, 2017 after the semi-annual interest payment was made, Courtland Corp. had the following information available regarding its convertible bonds:

• $3,100,000 of convertible bonds outstanding.
• The bonds pay 8% interest semiannually on the last days of January and July.
• Each $1,000 bond is convertible into 33 common shares with no par value.
• On January 31, 2017, $68,200 of bonds were converted.
• Market value of the bonds on conversion date was 97.
• Market price of the common shares on conversion date was $33.
• Carrying value of the common shares on conversion date was $19.
• The Contributed surplus - convertible bonds options account had a balance of $430,000.
• The total unamortized discount on January 31, 2017 was $165,000.
• The remainder of the bonds were retired at maturity having never been converted.
• Courtland Corp. uses the book value method to record conversion and amortization of discount.
• Courtland Corp. uses the residual method to value and record the debt and equity components of the convertible debt when it was issued.

Enter an appropriate description when entering the transactions in the journal. a) Prepare the journal entry on January 31, 2017 to record bond conversion.

b) Assume now that in addition to the data presented in part a), that Courtland Corp. included an additional sweetener of $18,000 cash at the time of conversion. Prepare the journal entry to record the bond conversion.

c) Prepare the entry at maturity to retire the remaining bonds, assuming the final interest payment has been made and the maturity date is January 31.