On January 1, 2018, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bondspay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no parcommon stock. Madison records interest by the straight-line method.On June 1, 2020, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2020. By June 30, all bondholders had chosen to convert their bonds into shares as of the interestpayment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for thebonds being converted.Required:1. Prepare the journal entry for the issuance of the bonds by Madison.2. Prepare the journal entry for the June 30, 2018, interest payment.3. Prepare the journal entries for the June 30, 2020, interest payment by Madison and the conversion of thebonds (book value method).
On January 1, 2018, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8
million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds
pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par
common stock. Madison records interest by the straight-line method.
On June 1, 2020, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2020. By June 30, all bondholders had chosen to convert their bonds into shares as of the interest
payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the
bonds being converted.
Required:
1. Prepare the
2. Prepare the journal entry for the June 30, 2018, interest payment.
3. Prepare the journal entries for the June 30, 2020, interest payment by Madison and the conversion of the
bonds (book value method).
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