Street Smart Inc issued $5,000,000 of convertible 10-year bonds on July 2017. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The premium in connection with the issue was $108,000, which is being amortized monthly on the straight-line basis.

The bonds are convertible after one year into 8 shares of Street Smart Inc $100 par value common stock for each $1,000 of bonds.

On August 1, 2018 $500,000 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.

Common stock

Preferred stock

$0.30 per share $0.30 per share -----------------

$0.50 per share $0.50 per share $0.50 per share

BACC 513 Spring 2018 Take home exam

Instructions

Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Round to the nearest dollar)

a) August 1, 2018 (Assume the book value method is used)

b) August 31, 2018

c) December 31, 2018, including closing entries for the year-end.