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Accounting for Bonds Payable

Volker Inc. issued $2,832,000 of convertible 10-year bonds on July 1, 2012. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $31,200, which is being amortized monthly on a straight-line basis.

The bonds are convertible after one year into 8 shares of Volker Inc.'s $100 par value common stock for each $1,200 of bonds.
On August 1, 2013, $283,200 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash.
Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
(a) August 1, 2013. (Assume the book value method is used.)
(b) August 31, 2013.
(c) December 31, 2013, including closing entries for end-of-year.
Account Titles and Explanation
(To record the issuance of shares of common stock and
The write-off of the discount on bonds payable.)
(To record payment in cash of interest accrued on bonds.)
(To record amortization of discount on bonds)
(To record accrual of interest on bonds.)
(To close expense account)

Solution Summary

This problem is about accounting for conversion of bonds payable while discount is amortized on a straight-line basis and conversion right is not recorded. Solution is made using a dynamic Excel sheet. Journal entries are supported with various calculations.