On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $200,000 and a book value of $194,000. The interest on these bonds was paid on June 30. When these bonds were issued, each $1,000 bond was convertible into 20 shares of $10 par common stock. To induce conversion, on June 15, 2020, the terms were changed so that each bond was convertible into 22 shares of common stock if the conversion was made within 30 days. All the bonds were converted on July 1, 2020, when the market price of the common stock was $50 per share.
Using the book value method, record the conversion of the bonds on July 1, 2020.
Prepare the journal entry to record conversion of the bond as on July 1, 2020 using the book value method.
Induced Conversion:
Induced conversion is a method wherein, the convertible bonds issued by the company are converted into common stock in order to reduce interest costs or for increasing the debt-to-equity ratio of the company.
Prepare the journal entry to record conversion of the bond as on July 1, 2020.
Date | Account titles and Explanation | Debit | Credit |
July 1, 2020 | Bonds payable | $200,000 | Â |
 | Bond conversion expense (3) | $20,000 |  |
 |     Discount on bonds payable (2) |  | $6,000 |
 |     Common stock (1) |  | $44,000 |
 |     Additional paid - in capital on common stock (balancing figure) |  | $170,000 |
 | (To record conversion of bonds) |  |  |
Table (1)
Working notes:
(1)Calculate common stock.
(2)Calculate Discount on bonds payable.
(3)Calculate bond conversion expense
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