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Convertible Bonds - Journal Entries

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1. Dahl Co. issued $5,000,000 of 12%, 5-year convertible bonds on December 1, 2006 for $5,020,800 plus accrued interest. The bonds were dated April 1, 2006 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Dahl Co. has a fiscal year end of September 30.

On October 1, 2007, $2,500,000 of these bonds were converted into 35,000 shares of $15 par common stock.
Accrued interest was paid in cash at the time of conversion.

a. Prepare the entry to record the interest expense at April 1, 2007. Assume that interest payable was
credited when the bonds were issued (round to nearest dollar).

b. Prepare the entry to record the conversion on October 1, 2007. Assume that the entry to record
amortization of the bond premium and interest payment has been made.

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Solution Summary

The solution explains the journal entries relating to interest payment and bond conversion.