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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, 2019, Branson Corporation issued $500,000 of convertible bonds at par value. The bonds were issued with a stated interest rate of 3%. Each $1,000 bond is convertible into 20 shares of the corporation’s $1 par value common stock. Branson may also elect to settle bonds with a cash payment in lieu of issuing stock. Similar bonds without the conversion feature would have sold for $455,000. Prepare the journal entry for Branson to record the issuance of the convertible bonds.

To determine

Prepare the journal entry to record the issuance of convertible bonds.

Explanation

Convertible bonds:

Convertible bonds are a kind of bonds that can be easily converted into common stock at the option of the issuance of the bond and they fetch higher yields than the common stock

Prepare the journal entry to record the issuance of convertible bonds.

DateAccount titles and ExplanationDebitCredit
 Cash$500,000  
 Discount on bonds payable$45,000  
      Bonds payable $500,000
       Additional paid in capital - Conversion feature (1) $45,000
 (To record issuance of convertible bonds)  

Table (1)

Working note:

(1)Calculate additional paid in capital- conversion feature...

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