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# Dahl Co.: Convertible Bonds

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, for \$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 journal entries to record the interest expense at April 1, 2007. Assume that interest payable was credited when the bonds were issued (round to the 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.

#### Solution Preview

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

At the time the bonds are issued, the interest outstanding is for 8 months. The interest amount is 5,000,000X12%X8/12=400,000. The interest paid on April 1 will be for 12 months = 600,000. ...

#### Solution Summary

The solution explains the journal entries relating to convertible bonds

\$2.19