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Garr Co

Accounting

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.

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