Chapter 16, Problem 6E

To determine

Convertible Bonds: Bonds are long-term debts issued by a corporation. They can be issued at a discount or premium. Convertible bonds are long-term debts issued by a corporation carrying a fixed rate of interest which can be converted into securities of the corporation after a specific period of time. These debts offer a double benefit to the holder in terms of guaranteed return of interest and principal and a right to convert the debt into ownership participation.

To prepare: To prepare journal entries using book value method.

Given information: Debentures: 4,000,000.

Rate: 8%.

Issue price: $102.

Debentures converted: 400,000.

Selling price: $110.

Additional conversion: 400,000.

Price: $115.