Reference no: EM132874234

Question - On January 1, 2019, a publicly traded corporation issued $9 million of 10-year, 5% convertible bonds at par. Other similar bonds available for sale but without the conversion feature would have sold for $7,735,755 to yield a market rate of 7%. Interest is to be paid annually on December 31 every year. Each $1,000 bond can be converted into five common shares of the company's shares after December 31, 2020. On January 1, 2021, the day after the 2nd interest payment, half of the bonds are converted into common shares. The fair value of the company's common shares was $45 on January 1, 2019 and $120 per share on January 1, 2021.

Instructions - Make the necessary journal entries, rounding to the nearest dollar, for

a. January 1, 2019, the date of issue

b. January 1, 2021, the date of conversion of half the bonds

Record the conversions using the book value method.