Chapter 9, Problem 9.60BP

(Learning Objectives 2, 3, 6: Issue convertible bonds at a discount; amortize using the effective interest method; convert bonds; report bonds payable on the balance sheet) On December 31, 2018, Herndon Corporation issues 6%, 10-year convertible bonds payable with a face value of $1,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 7%. Herndon amortizes bond discounts using the effective-interest method.

Requirements

1. Use the PV function in Excel to calculate the issue price of the bonds.

2. Prepare an effective-interest method amortization table 'or the term of the bonds using Excel.

3. Journalize the following transactions:

1. a. Issuance of the bonds on December 31 , 2018. Credit Convertible Bonds Payable.
2. b. Payment of interest and amortization of the bond discount on June 30, 2019.
3. c. Payment of interest and amortization of the bond discount on December 31, 2019.
4. d. Conversion by the bondholders on July 1, 2020, of bonds with a total face value of $400,000 into 120,000 shares of Herndon $1-par common stock.

4. Show how Herndon would report the remaining bonds payable on its balance sheet at December 31, 2020.