Reference no: EM132687896
On Jan. 1, 2020, Issuer Corporation issued $8 million of 9%, 10-year convertible bonds priced to yield 10% (current market rate). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 50 shares of $1 par common stock. Issuer Corp. has opted to use fair value accounting to account for this bond issue. They adjust the books after every interest payment to correct reflect fair market values. On June 30, 2020 the market rate for bonds of like risk was 9.5%, on Dec. 31, 2020 the comparable interest rate was 9.5% and on June 30, 2021 the market rate of interest on similar risk bonds was 9.6%. Issuer Corporation uses the effective-interest method for amortization of bond discount or premium. They use the market value method to account for any bond conversions.
On July 1, 2021, Buyer Company exercised the option to convert all their holdings. The market price per share for Issuer Corporation was $22.00 at the time of the conversion.
On Jan. 1, 2020, Buyer Company purchased 10% of the Issuer Corporation bonds as an investment. On July 1, 2021, Buyer exercised their option and converted all its bonds into common stock of Issuer Corporation. Buyer Company uses the effective-interest method for amortization bond discount or premium. Buyer has NOT opted to use fair value methods
Required:
Problem 1: Prepare journal entries for Issuer Corporation for the dates listed below.
A. Jan. 1, 2020
B. June 30, 2020
C. December 31, 2020
D. June 30, 2021
E. July 1, 2021
Problem 2: Prepare journal entries for Buyer Company for the dates listed below.
F. Jan. 1, 2020
G. June 30, 2020
H. December 31, 2020
I. June 30, 2021
J. July 1, 2021
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