Novak Inc. issued $3,840,000 of 11%, 10-year convertible bonds on June 1, 2025, at 99 plus accrued interest. The bonds were dated April 1, 2025, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2026, $1,440,000 of these bonds were converted into 36,000 shares of $18 par value common stock. Accrued interest was paid in cash at the time of conversion. (a) (b) Prepare the entry to record the interest expense at October 1, 2025. Assume that accrued interest payable was credited when the bonds were issued. Prepare the entry to record the conversion on April 1, 2026. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,125.) No. Account Titles and Explanation Debit Credit

Novak Inc. issued $3,840,000 of 11%, 10-year convertible bonds on June 1, 2025, at 99 plus accrued interest. The bonds were dated April 1, 2025, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2026, $1,440,000 of these bonds were converted into 36,000 shares of $18 par value common stock. Accrued interest was paid in cash at the time of conversion. (a) (b) Prepare the entry to record the interest expense at October 1, 2025. Assume that accrued interest payable was credited when the bonds were issued. Prepare the entry to record the conversion on April 1, 2026. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places, e.g. 5,125.) No. Account Titles and Explanation Debit Credit

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 5PA: Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July...

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Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
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