Reference no: EM132975151
Question - On December 1, 2017, Bligh Corporation (a private Canadian company) issued a series of convertible bonds to finance their plans for expansion. The face value of the bonds was $12,000,000, and the bonds were issued at 98. The bonds paid interest annually at a rate of 6% and matured in 10 years. In order to make the bonds more appealing to investors, each $1,000 bond could be converted to 100 shares in Bligh Corporation. Similar bonds trading on the open market without the convertible option sold at the same price to yield 8%. Bligh used the effective interest method of amortization for bond discounts or premiums. The company's fiscal year-end was December 31.
REQUIRED -
a) Prepare the entry on Bligh Corporation's books to record the issuance of the convertible bonds on December 1, 2017.
b) Prepare the rows of a Bond Premium / Discount Amortization Schedule for 2017 through 2020 for Bligh Corporation.
c) Any required accrual entries at Bligh's December 31, 2019 yearend.
d) On August 1, 2020, Bligh Corporation offered an incentive of $300,000 in total to the bond holders as an inducement to convert their bonds to common shares. The bonds on that date were trading on the open market for $10,750,000. Assuming that 2/3 of the bond holders chose to convert their bonds to common shares, prepare the journal entry on the books of the Bligh Corporation to record the conversion on August 1, 2020.
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