Help, Help, help. I am not too familiar with convertible bonds. I


Question Description:

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Help, Help, help. I am not too familiar with convertible bonds. I need help checking this answers and getting the ones missing. Please!!! CPA Simulation (Convertible Bonds).xlsx On January 1, Year 1, Acorn Financial Corp. issued 800 convertble bonds. Each $1,000 face value bond is convertble into 5 shares of common stock. The bonds have a 10 year term to maturity and pay interest semiannually. Acorn’s common stock has a par value of $20.00 per share. The bonds have a stated interest rate of 4% and pay interest semiannually. The convertble bonds were sold for $875,500. Bond issue costs of $50,000 will be subtracted from the bond sale proceeds to be received by Acorn. The bonds were sold to yield a market interest rate of 3%. Acorn will use the effective interest method to amortze the bond discount and/or premium. Round all amounts to the nearest dollar. Number of bonds Face Value per bond Bond price Issue costs Bond term Stated interest Rate Market interest rate Common stock par value Conversion ratio (# of shares of stock per bond) 800 1,000 800,000 50,000 10 4% 3% 20 4,000 Requirement 1: Record the journal entry for the issurance of the convertble bonds on January 1, Year 1. Acount Title Cash Bond Payable Premium on Bond Payable Debit 875,500 Credit 800,000 75,500 Requirement 2 : Record the journal entries on June 30, Year 1 to recognize interest expense and the amortzaton of the bond issue cost for the first 6 months of year 1. Acount Title Bond Interest Expense Premium on Bond Payable Cash Debit 13,133 2,867 Credit 16,000 Interest expense = 13133 Interest payment = 2867 Acount Title Interest Expense Interest Payable Debit 2,867 Credit 2,867 Requirement 3 : Record the journal entries on December 31, Year 1 to recongize interest expense and the amortzaton of the bond issue cost for the second half of Year 1. Acount Title Bond Interest Expense Premium on Bond Payable Cash Debit 13,089 2,911 Credit 16,000 Book Value = 869722 Interest expense = 13089 Interest payment = 2911 Acount Title Interest Expense Interest Payable Debit 2,911 Credit 2,911 Requirement 4 (1 Point): Assume that the bonds are converted on January 1, Year 2 and Acorn uses the book value method to account for the conversion of bonds into common stock. Record the journal entry for the conversion. Acount Title Debit Credit Book value = Unamortzed premium = Bond issue cost (unamortzed porton)= Requirement 5 (1 Point) : Assume that the bonds are converted on January 1, Year 2 and Acorn uses the market value method to account for the conversion of bonds into common stock. Assume the market price of the common stock on the date of conversion was $250 per share. Record the journal entry for the conversion. Acount Title Debit Credit Date Interest Interest Amortization Payment Expense Mkt of Bond Credit Balance Credit Balance Book Value of Stated 2% 1.5% Premium C in the Account in Bond Payable the Bonds F (semiannual) Previous BV minus B Bond Premium Account plus E Debit Interest Expense Credit Cash Jan Year 1 June Year 1 Dec 31, Year 1 June Year 2 Dec 31, Year 2 June Year 3 Dec 31, Year 3 June Year 4 Dec 31, Year 4 June Year 5 Dec 31, Year 5 June Year 6 Dec 31, Year 6 June Year 7 Dec 31, Year 7 June Year 8 Dec 31, Year 8 June Year 9 Dec 31, Year 9 June Year 10 Dec 31, Year 10 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 16,000.00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 13,133 13,089 13,046 13,002 12,957 12,911 12,865 12,818 12,770 12,721 12,672 12,622 12,572 12,520 12,468 12,415 12,361 12,307 12,251 12,195 Debit Bond Premium $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (2,868) (2,911) (2,954) (2,998) (3,043) (3,089) (3,135) (3,182) (3,230) (3,279) (3,328) (3,378) (3,428) (3,480) (3,532) (3,585) (3,639) (3,693) (3,749) (12,998) $ $ $ $ $ $ $ $ $ $ $ $ $ $

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