Reference no: EM131779202

Question -

Q1. Garr Co. issued $5,000,000 of 12%, 5 year convertible bonds on December 1, 2010 for $5,020,800 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30.

On October 1, 2011, $2,500,000 of these bonds were converted into 35,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.

Instructions

(a) Prepare the entry to record the interest expense at April 1, 2011. Assume that interest payable was credited when the bonds were issued. (round to nearest $)

(b) Prepare the entry to record the conversion on October 1, 2011. Assume that the entry to record amortization of the bond premium and interest payment has been made.

Q2. Dim Co. has bonds payable outstandin in the amount of $400,000, and the premium on bonds payable account has a balance of $6,000. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted into preferred stock. Assuming that the book value method was used, what entry would be made?