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Accounting for Convertible Bonds

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Von Surf Co. issued $1,200,000 of convertible 10 year debentures on July 1, 2012. The debentures provide for 8% interest payable semiannually on January 1 and July 1. The discount in the connection with the issue was $18,000, which is being amortized monthly on a straight-line basis.

The debentures are convertible after one year into nine shares of the Von Surf Co's $1 par value common stock for each $1,000 of debentures.

On August 1, 2013, $200,000 of debentures were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. Accrued interest on debentures is paid in cash upon conversion.

Prepare the journal entries to record the conversion, amortization, and interest in connection with the debentures as of August 1, 2013, August 31, 2013, and December 31, 2013, including closing entries for year-end. Note: On the bond issuance date, it had been at least reasonably possible that the bonds would eventually be converted. (Note: Round to the nearest dollar)

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Solution Summary

This solutions illustrates the journal entries to record the conversion, amortization, and interest in connection with convertible bonds.

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