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Garr Co
Garr Co. issued $6,000,000 of 12%, 5-year convertible bonds on December 1, 2020 for $6,025,480 plus accrued interest. The bonds were dated April 1, 2020 with interest payable
April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr Co. has a fiscal year end of September 30.
On October 1, 2021, $3,000,000 of these bonds were converted into 42,000 shares of $15 par common stock. Accrued interest was paid in cash at the time of conversion.
Instructions
(a) Prepare the entry to record the interest expense at April 1, 2021. Assume that interest payable was credited when the bonds were issued (round to nearest dollar).
(b) Prepare the entry to record the conversion on October 1, 2021. Assume that the entry to record amortization of the bond premium and interest payment has been made.
(a) Interest Payable 120,000
Interest Expense 238,040
Premium on Bonds Payable 1,960
Cash 360,000
Calculations:
Issuance price $6,025,480
Par value 6,000,000
Total premium $ 25,480
Months remaining 52
Premium per month $490
Premium amortized (4 × $490) $1,960
why question a, interest payable and interest expense together in one journal entry? Also, would you please give detailed explanation and calculation how to get Interest Expense 238,040 this number. This is not plug in number. Thanks.
Expert Solution
| Journal Entries | ||
| Account Title and Explanation | Debit | Credit |
| Interest Payable ( 360,000 /6*2) | 120,000 | |
| Interest Expense (360,000/6*4)-1,960 | 238,040 | |
| Premium on Bonds Payable (25,480)/52*4 | 1,960 | |
| Cash(6,000,000*6%) | 360,000 | |
| (To record the interest expense on April 1, 2021) | ||
| Account Title and Explanation | Debit | Credit |
| Bonds Payable | 3,000,000 | |
| Premium on Bonds Payable | 10,290 | |
| Common Stock (42000 *15) | 630,000 | |
| Paid in Capital in Excess of Par Value | 2,380,290 | |
Discounts on bonds payable:
Premium related to (25,480 / 6,000,000) * 3,000,000= 12,740
Less. Premium amortized (12,740)/52*10 = 2,450
Unamortized bond premium = 10,290
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