Homework Answers
Solution)
|
Date |
Account titles and Explanation |
Debit |
Credit |
|
Jan1 |
Cash A/c Dr |
$166,400 |
|
|
To Premium for bond payable A/c |
$6400 |
||
|
To 6% bond payable |
$160,000 |
||
|
( being 6% bond issues at premium of $4) |
|||
|
June 30 |
6% bonds payable(160*100) |
$16000 |
|
|
Interest payable to bondholders |
$480 |
||
|
Loss on bond conversion (balancing figure) |
$4000 |
||
|
To equity shares (2560 *$8) |
$20480 |
Working Note:
The face value of the bond is $100; Blossom Corporation issued 1600, 6% bonds for 104
1600 * 104 = $166400
On June 30, 160 bondholders converted their bond into share
Each $1500 bond gets the options to convert 240 shares
Considering the face value of bond, which means $1500 / $100 = 15bonds, in exchange of 15 bonds, bondholder will get 240 share of $8 each
Which means conversion ratio = 240/15
= 16:1
Means for conversion of 1 bond, person will get 16 common shares in Blossom Corporation
Number of share issued to 160 holders
=160*16
= 2560 shares
Issuing price of the share = 2560* $8 =$20480
Interest calculations on 160 bonds that are being converted
160*100 = $16000
6% interest for year = $16000 * 6% = $960
For half year ( from 1 Jan to 30 june) = $960/2
= $480
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