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Prepare the entries of the company in connection with bonds

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Faith Company issued 5500 convertible bonds on January 1, 2019. The bonds have a three year term and are issued at 110 with a face value of 1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at any time up to maturity into 100 common shares with par value of 5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%. The present value of 1 at 9% for 3 periods is .77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53.

Question 1: Prepare the entries of the company in connection with the bonds for its 3 year term assuming the bonds were not converted.

Question 2: Suppose that the company converted the bonds on December 31, 2019, Prepare the entries on the bonds during 2019.

Reference no: EM132820630

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