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# Conversion of bonds

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Catt Co. issued \$3,000,000 of 12%, 5 year convertible bonds on December 1, 2003, for \$3,013,000 plus accrued interest. The bonds were dated April 1, 2003 with interest payable April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Catt Co. has a fiscal year end of September 30.

On October 1, 2004, \$1,500,000 of these bonds were convereted into 21,000 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, 2004. Assume that interest payable was credited when the bonds were issued.

b) Prepare the entry to record the conversion on October 1, 2004. Assume that the entry to record amortization of the bond premium and interest payment has been made.

https://brainmass.com/economics/bonds/conversion-of-bonds-262138

#### Solution Preview

a) Prepare the entry to record the interest expense at April 1, 2004. Assume that interest payable was credited when the bonds were issued.

The amount of accrued interest is for 8 months.
The amount is 3,000,000X12%X8/12=240,000. This amount would be recorded as interest payable
The total cash received for the bonds is \$3,013,000+240,000=3,253,000.
At April 1, 2004, the accrued interest would be paid + the interest for the period Dec 1, 2003 to April 1, 2004 which is 4 months. The interest for 4 months is 120,000. Also the premium would be ...

#### Solution Summary

The solution explains the entries for interest payment and conversion of bonds into common stock

\$2.19