Reference no: EM132571771
Question - On January 1, 2020, Vaughn Corporation issued a series of 400 convertible bonds, maturing in five years. The face amount of each bond was $1,000. Vaughn received $431,000 for the bond issue. The bonds paid interest every December 31 at 4%; the market interest rate for bonds with a comparable level of risk was 3%. The bonds were convertible to common shares at a rate of ten common shares per bond. Vaughn amortized bond premiums and discounts using the effective interest method, and the company's year-end was December 31.
On January 1, 2021, 80 of the bonds were converted into common shares. On June 30, 2021, another 80 bonds were converted into common shares. The bondholders chose to forfeit the accrued interest on these bonds.
On January 1, 2022, when the fair value of the bonds was $249,800 due to a decrease in market interest rates, a conversion inducement of $19/bond was offered to the remaining bondholders to convert their bonds to common shares. All of the remaining 240 bonds were converted into common shares at this time.
Required - Do all required journal entries to record the above transactions. (Hint: don't forget to accrue interest and amortize the premium on the bond at year-end, if needed).
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