Convertible Bonds, Conversion. Using the information provided in E14-13, complete the following requirements assuming that the effective rate of interest for convertible bonds is 4% on the date of issue.
Required
- a. Determine the issue price of the debt.
- b. Prepare the amortization table for the bond issue assuming that Mobile Technology uses the effective interest rate method of amortization.
- c. Prepare the
journal entry when Mobile Technology issued the bonds. - d. Prepare the journal entry to record the first interest payment.
- e. The bonds converted on January 1, 2021. Prepare the journal entry to record the bond conversion.
E14-13. Convertible Bonds, Conversion. On January 1, 2018, Mobile Technology, Incorporated issued $650,000 of $1,000 par value, 6%, 6-year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2018. The market rate of interest for similar non-convertible bonds on the date of the bond issue was 10%. However, because these bonds are convertible, the effective rate is 8%. Each bond is convertible into 20 shares of Mobile Technology’s $2 par value common stock. Assume there is no beneficial conversion option.
Required
- a. Determine the issue price of the debt.
- b. Prepare the amortization table for the bond issue assuming that Mobile Technology uses the effective interest rate method of amortization.
- c. Prepare the journal entry when Mobile Technology issued the bonds.
- d. Prepare the journal entry to record the first interest payment.
- e. The bonds converted on January 1, 2021. Prepare the journal entry to record the bond conversion.
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