Cain Corporation issued 4,400, five year, 4% convertible bonds at 104 on January 1, 2020. Interest is paid annually on December 31, each year. Each $1,000 bond allowed the holder to convert the bond into 6 common shares. At the time the bonds were issued, Cain's common shares were trading at $14/share. Similar straight bonds without the conversion feature were trading on the open market paid 5%. On January 1, 2021, when the fair value of the corporation's common shares was $18/share, 880 of the bond holders converted their bonds to common shares. (Round present value to 0 decimal places e.g. 58,971.) Required: 1. Prepare the journal entries required on January 1, 2020 to record the issuance of the convertible bonds. 2. Using the book value method, prepare the entry to record the exercise of the conversion option on January 1, 2021
Cain Corporation issued 4,400, five year, 4% convertible bonds at 104 on January 1, 2020. Interest is paid annually on December 31, each year. Each $1,000 bond allowed the holder to convert the bond into 6 common shares. At the time the bonds were issued, Cain's common shares were trading at $14/share. Similar straight bonds without the conversion feature were trading on the open market paid 5%. On January 1, 2021, when the fair value of the corporation's common shares was $18/share, 880 of the bond holders converted their bonds to common shares. (Round present value to 0 decimal places e.g. 58,971.) Required: 1. Prepare the journal entries required on January 1, 2020 to record the issuance of the convertible bonds. 2. Using the book value method, prepare the entry to record the exercise of the conversion option on January 1, 2021
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cain
Corporation issued 4,400, five year, 4% convertible bonds at 104 on January 1, 2020. Interest is paid annually on December 31, each year. Each $1,000 bond allowed the holder to convert the bond into 6 common shares.
At the time the bonds were issued, Cain's common shares were trading at $14/share.
Similar straight bonds without the conversion feature were trading on the open market paid 5%.
On January 1, 2021, when the fair value of the corporation's common shares was $18/share, 880
of the bond holders converted their bonds to common shares.
(Round present value to 0 decimal places e.g. 58,971.)
Required:
1.
Prepare the journal entries required on January 1, 2020 to record the issuance
of the convertible bonds.
2.
Using the book value method, prepare the entry to record the exercise of the
conversion option on January 1, 2021
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