On January 1, 2021, Madison Products issued $70 million of 6%, 10-year convertible bonds at a net price of $70.9 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, 2023, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2023. 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. In this question, combine the discount on the bonds with the face amount, and record the net amount as bonds payable. This is the "net method." When the net method is used, the discount (or premium) is amortized directly to the bonds payable account. Required: Assume that Madison Products prepares its financial statements according to International Financial Reporting Standards using the net method. 1. & 2. Prepare the journal entries for the issuance of the bonds by Madison and interest payment for the June 30, 2021. 3. Prepare the journal entries for the June 30, 2023, interest payment by Madison and the conversion of the bonds (book value method).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
On January 1, 2021, Madison Products issued $70 million of 6%, 10-year convertible bonds at a net price of $70.9 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, 2023, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2023. 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.
In this question, combine the discount on the bonds with the face amount, and record the net amount as bonds payable. This is the
"net method." When the net method is used, the discount (or premium) is amortized directly to the bonds payable account.
Required:
Assume that Madison Products prepares its financial statements according to International Financial Reporting Standards using the net
method.
1. & 2. Prepare the journal entries for the issuance of the bonds by Madison and interest payment for the June 30, 2021.
3. Prepare the journal entries for the June 30, 2023, Interest payment by Madison and the conversion of the bonds (book value
method).
Req 1 and 2
Prepare the journal entries for the issuance of the bonds by Madison and interest payment for the June 30, 2021. (If no entry
is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole
dollars.)
No
1
Req 3
2
Date
January 01, 2021 Cash
June 30, 2021
General Journal
Convertible bonds payable
Equity-conversion option
Interest expense
Convertible bonds payable
Cash
✔
✔
333
✔
Debit
70,900,000
2,100,000 x
Credit
69,300,000
1,600,000
45,000 x
2,100,000
Transcribed Image Text:On January 1, 2021, Madison Products issued $70 million of 6%, 10-year convertible bonds at a net price of $70.9 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, 2023, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2023. 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. In this question, combine the discount on the bonds with the face amount, and record the net amount as bonds payable. This is the "net method." When the net method is used, the discount (or premium) is amortized directly to the bonds payable account. Required: Assume that Madison Products prepares its financial statements according to International Financial Reporting Standards using the net method. 1. & 2. Prepare the journal entries for the issuance of the bonds by Madison and interest payment for the June 30, 2021. 3. Prepare the journal entries for the June 30, 2023, Interest payment by Madison and the conversion of the bonds (book value method). Req 1 and 2 Prepare the journal entries for the issuance of the bonds by Madison and interest payment for the June 30, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) No 1 Req 3 2 Date January 01, 2021 Cash June 30, 2021 General Journal Convertible bonds payable Equity-conversion option Interest expense Convertible bonds payable Cash ✔ ✔ 333 ✔ Debit 70,900,000 2,100,000 x Credit 69,300,000 1,600,000 45,000 x 2,100,000
Req 1 and 2
Prepare the journal entries for the June 30, 2023, interest payment by Madison and the conversion of the bonds (book value
method). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter
your answers in whole dollars.)
No
1
Req 3
2
Date
June 30, 2023
June 30, 2023
General Journal
Interest expense
Convertible bonds payable
Cash
Convertible bonds payable
Equity-conversion option
Common stock
✔
♥
✓
300
Debit
2,100,000 X
45,000 x
70,675,000 x
25,000 x
Credit
2,100,000
70,700,000 x
Transcribed Image Text:Req 1 and 2 Prepare the journal entries for the June 30, 2023, interest payment by Madison and the conversion of the bonds (book value method). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) No 1 Req 3 2 Date June 30, 2023 June 30, 2023 General Journal Interest expense Convertible bonds payable Cash Convertible bonds payable Equity-conversion option Common stock ✔ ♥ ✓ 300 Debit 2,100,000 X 45,000 x 70,675,000 x 25,000 x Credit 2,100,000 70,700,000 x
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Bond Amortization
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education