Reference no: EM132460673

Sundown Corporation decides to finance expansion of its plant facilities by issuing convertible bonds. The terms of the bonds are: maturity date, 10 years after May 1, 2017, date of issuance; conversion at the option of the holder after 2 years, 40 shares at $25 par value shares for each $1,000 bond; interest rate of 12% payable semiannually. The bonds with total face value of $1,000,000 were sold at $102 plus accrued interest on July 1, 2017. The estimated sales price of the bonds exconversion privilege is 98.

Required: Prepare the journal entry to record the issuance of the bonds assuming:

Question a. The convertible bonds are treated solely as debt.

Question b. The convertible bonds are treated as partly debt and partly capital.

Garden Company issued $2,000,000 of 12% serial bonds for a total price of $2,048,000 on January 1, 2017. The bonds mature at the rate of $400,000 per year starting on December 31, 2017. Interest is payable on June 30 and December 31.

Required:

Question a. Prepare schedule showing the amortization of premium and total interest expense for each year. Amortization is computed using bond outstanding method.

Question b. Assume that on July 1, 2017, $100,000 of the bonds, which were scheduled to be retired on December 31, 2019 were retired at 103.

On July 1, 2017, Tara Company issued 4,000 of its 8% $1,000 face value bonds payable for $3,504,000. The bonds were issued to yield 10%. The bonds are dated July 1, 2017 and mature on July 1, 2027. Interest is payable semiannually on January 1 and July 1.

Required:

Question a. Using effective interest method, how much of the bond discount should be amortized for the six month ended December 31, 2017? Problem 2-11

On January 1, 2017, Ward Company issued its 9% bonds in face amount of $4,000,000 which mature on January 1, 2027. The bonds were issued for $3,756,000 to yield 10% resulting in bond discount of $244,000. Ward company uses the interest method of amortizing bond discount. Interest is payable annually on December 31. Required: Compute for then unamortized bond discount on December 31, 2017.

Blue Company issued in a private placement with an insurance company, $1,000,000 face value of three-year 4.5% bonds. Interest is payable semi-annually on December 31 and June 30 of each year. The bonds were sold on January 1 of the current year at a price yielding the company $959,370 which represents an effective interest rate of 6% per year.

Required:

Question a. Prepare amortization table showing the interest expense for each six-month period on an effective interest basis. (Round all computations to the nearest dollar)

Question b. Using the data in the amortization table prepared above, make journal entries to record the issuance of the bonds, the interest payments at the end of the first six months, and the last six months of the bond issue and the retirement of the bonds at maturity.