Reference no: EM132868274
Problem - The following events relate to Purple Corporation's issue of convertible debentures:
On January 1, 2015, the Mathers Corporation issued $500,000 of 12% convertible bonds for $460,000. The bonds are due on January 1, 2025, and interest is paid on July 1 and January 1. Each $1,000 bond is convertible into 30 shares of common stock with a par value of $1 per share. On the date of bond issuance, a share of common stock was selling at $24.
On January 2, 2017, 12% convertible bonds with a face value of $300,000 were converted into common stock. The market value of the common stock on the date of conversion was $10 per share. Mathers uses the straight-line method to amortize premiums and discounts.
Required -
a. Prepare the journal entry to record the issuance of the convertible bonds.
b. Record the conversion on January 2, 2012, using the book value method.
c. Assuming that any gain or loss on conversion is material, how would it be disclosed in the financial statements?