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Homework answers / question archive / On January 1, 2017, Bridgeport Corporation issued $4,100,000 of 10-year, 8% convertible debentures at 104

On January 1, 2017, Bridgeport Corporation issued $4,100,000 of 10-year, 8% convertible debentures at 104

Finance

On January 1, 2017, Bridgeport Corporation issued $4,100,000 of 10-year, 8% convertible debentures at 104. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Bridgeport Corporation $102 par value common stock after December 31, 2018.

On January 1, 2019, $410,000 of debentures are converted into common stock, which is then selling at $111. An additional $410,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.

Make the necessary journal entries for:

(a) December 31, 2018

(b) January 1, 2019.

(c) March 31, 2019

(d)June 30, 2019.

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Answer a)

Bridgeport Corporation

Journal Entries

 

Event Particulars Debit ($) Credit ($)
31.12.2018 Bond interest Expense a/c Dr 155,800  
  Premium on Bonds Payable a/c Dr 8,200  
  To Cash   164,000
  ($4,100,000 * 8% * 6/ 12)    
  ($164,000 * 1/ 20)    

 

Answer b)

Bridgeport Corporation

Journal Entries

 

1.1.2019 Bonds Payable a/c Dr 410,000  
  Premium on Bonds Payable a/c Dr 13,120  
  To Common stock   334,560
  To Paid-in Capital in Excess of Par   88,560
  [8 * $102 * ($410,000/ $1,000)]    
  Total premium    
  ($4,100,000 * 0.04) 164,000  
  Premium amortized    
  ($164,000 * 2/ 10) 32,800  
  Balance 131,200  
  Bonds converted    
  ($410,000/ $4,100,000) 10%  
  Related premium    
  ($131,200 * 10%) 13,120  

 

Answer c)

Bridgeport Corporation

Journal Entries

 

31.3.2019 Bond Interest Expense a/c Dr 7,790  
  Premium on Bonds Payable a/c Dr 410  
  To Bond interest payable   8,200
  ($13,120/ 8 years) * 3/ 12    
  ($410,000 * 8% * 3/ 12)    
  Bonds Payable a/c Dr 410,000  
  Premium on Bonds Payable a/c Dr. 12,710  
  To Common stock   334,560
  To Paid-in Capital in Excess of Par   88,150
  Premium as of January 1, 2019 for $410,000 of bonds 13,120  
  $13,120/ 8 years remaining * 3/12 410  
  Premium as of March 31, 2009 for $400,000 of bonds 12,710  

 

Answer d)

Bridgeport Corporation

Journal Entries

 

30.6.2019 Bond Interest Expense a/c Dr 124,640  
  Premium on Bonds Payable a/c Dr 6,560  
  Bond Interest Payable a/c Dr 8,200  
  To Cash   139,400
  [Premium to be amortized: ($164,000 * 80%) * 1/ 20 = $6 560    
  Total to be paid: ($3,280,000 * 8%/ 2) + $8,200= $139,400    
  ($410,000 * 8% * 1/4) = 8,200

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