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Convertible Bonds, Conversion. Using the information provided in E14-13, complete the following requirements assuming that the effective rate of interest for convertible bonds is 4% on the date of issue.
Required
- a. Determine the issue price of the debt.
- b. Prepare the amortization table for the bond issue assuming that Mobile Technology uses the effective interest rate method of amortization.
- c. Prepare the
journal entry when Mobile Technology issued the bonds. - d. Prepare the journal entry to record the first interest payment.
- e. The bonds converted on January 1, 2021. Prepare the journal entry to record the bond conversion.
E14-13. Convertible Bonds, Conversion. On January 1, 2018, Mobile Technology, Incorporated issued $650,000 of $1,000 par value, 6%, 6-year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2018. The market rate of interest for similar non-convertible bonds on the date of the bond issue was 10%. However, because these bonds are convertible, the effective rate is 8%. Each bond is convertible into 20 shares of Mobile Technology’s $2 par value common stock. Assume there is no beneficial conversion option.
Required
- a. Determine the issue price of the debt.
- b. Prepare the amortization table for the bond issue assuming that Mobile Technology uses the effective interest rate method of amortization.
- c. Prepare the journal entry when Mobile Technology issued the bonds.
- d. Prepare the journal entry to record the first interest payment.
- e. The bonds converted on January 1, 2021. Prepare the journal entry to record the bond conversion.
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Chapter 14 Solutions
Intermediate Accounting, Student Value Edition (2nd Edition)
- How are the bonds issued, what is the appropriate journal entry? Provide example for issuing bonds. How do we determine the present value of a bond when market rate differs from its contract rate? How do we record the interest payment (provide examples for both premium and discount amortization), using the effective interest method? What is the difference between the effective interest method and the straight line method when amortizing either a discount or a premium? Cite and give credit to the author that you are citing.arrow_forwardA $2,600 credit balance in the Premium on Bonds Payable account represents which of the following? Select one: a. An overpayment for a bond purchase b. An underpayment for a bond purchase c. The current amount of amortization expense d. The unamortized amount of premium earned on a bond issuearrow_forwardPlease help find issue price of bonds Requirements- Using PV function in excel calculate issue price of bonds Prepare effective interest amortization table for bonds through the first three interest payments Record ranking corporations issuance of bonds on March 31 2018. And payment of first semiannual interest amount and amortization of bond and discount on September 30,209. Explanations are not required.arrow_forward
- Review the following three bonds payable assumptions: (Click the icon to view the bond assumptions.) Journalize issuance of the bond and the first semiannual interest payment under each of the three assumptions. The company amortizes bond premium and discount by the effective-interest amortization method. Explanations are not required. (Record debits first, then credits. Exclude explanations from any journal entries. Round your final answers to the nearest whole dollar.) x lid semiannually. The market rate of interest is 10% at issuance. The present value of the bonds at issuance is $84,000. More Info 1. Seven-year bonds payable with face value of $84,000 and stated interest rate of 10%, paid semiannually. The market rate of interest is 10% at issuance. The present value of the bonds at issuance is $84,000. 2. Same bonds payable as in assumption 1, but the market interest rate is 12%. The present value of the bonds at issuance is $76,167. 3. Same bonds payable as in assumption 1, but…arrow_forwardIf bonds are redeemed on maturity date, any premium or discount a. Is carried forward and written off in the same manner as that used prior to the maturity date. b. Should be used to calculate the gain or loss resulting from the maturity of the bonds. c. Should be written off directly to a bond retirement account as the bond will be redeemed. d. Will be fully amortized as its amortization period is designed to coincide with the life of the bond issue.arrow_forwardWhen using the effective−interest amortization method for bonds, the amount of the interest expense is calculated using the carrying amount of the bonds and the ________________________. A. market value B. original cost C. market interest rate D. stated interest ratearrow_forward
- There are certain patterns we should expect to see on a bond amortization table. Complete the following statements regarding these patterns. Item Statements A. Assuming a term bond is issued at a premium, the cash interest payment calculated every period should: B. Assuming a term bond is issued at a premium, the interest expense amount calculated every period using the effective interest method should be C. Assuming a term bond is issued at a premium, the carrying value over time should be D. Assuming a term bond is issued at either a premium or a discount, the carrying value on the issuance date should be equal to the bond'sarrow_forwardBonds which require the face value (principal) amount to be paid back in installments over the life of the bond are called: Select one: a. serial bonds. b. convertible bonds. c. callable bonds. d. unsecured bonds. e. term bonds. f. secured bonds.arrow_forwardPresented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are classified as available-for-sale. 12/31/20 12/31/21 12/31/22 Amortized cost $491,150 $519,442 $550,000 Fair value 497,000 509,000 550,000 Instructions a. Indicate whether the bonds were purchased at a discount or at a premium. b. Prepare the adjusting entry to record the bonds at fair value at December 31, 2020. The Fair Value Adjustment account has a debit balance of $1,000 prior to adjustment. c. Prepare the adjusting entry to record the bonds at fair value at December 31, 2021.arrow_forward
- q3. For accounting purposes, interest expense recognized on bonds payable should be based on theA. effective interest rate, considering the issue price and the transaction costs.B. nominal interest rate.C. rate stated on the face of the bonds.D. market rate of interest on the reporting date.arrow_forward[The following information applies to the questions displayed below.] Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2021, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,456,448. Required: 1. Prepare the January 1 journal entry to record the bonds' issuance. 2(a) For each semiannual period, complete the table below to calculate the cash payment. 2(b) For each semiannual period, complete the table below to calculate the straight-line discount amortization. 2(c) For each semiannual period, complete the table below to calculate the bond interest expense. 3. Complete the below table to calculate the total bond interest expense to be recognized over the bonds' life. 4. Prepare the first two years of a straight-line amortization table. 5. Prepare the journal entries to record the first two interest payments. Complete this question by entering your answers in the tabs below. Req 1 Req 2A to 2C Req 3 Req 4 Req 5 For each…arrow_forwardIndicate the proper financial statement classification for each of the following accounts: Financial Statement Statement Classification Discount on Long-term Bonds Payable Answer Answer Mortgage Notes Payable Answer Answer Long-term Bonds Payable Answer Answer Bond Interest Expense Answer Answer Bond Interest Payable Answer Answer Premium on Long-term Bonds Payable Answerarrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
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