Precision Company has 72900 8 12year convertible bonds outst

Precision Company has $72,900, 8%, 12-year convertible bonds outstanding.

3. Prerision Campany has $72,9D0, ,12-year convertible bonds outstanding. These bands were sald at face value and pay semiannual interest on June 30 and December 31 of ezach year. The bonds are convertible into 25 shares af Precision $5 par value common stock for each $1,000 worth ot bonds. on December 31, 2015, after the bond interest has been paid, $11,000 tace value bonds were converted. The market value of precision common stock was $45 per share on December 31, 2015. For cach independent siton above, prepare the appropriate journal entry for the redemption or conversion of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit Bonds Payable Loss on Bond Redemption 14000 Cash 14281 Discount on Bonds Pa 200 Premium on Bonds Payable 1300 Cash Gain on Bond Redempti 1161 3.TBonds Fayablc 1000 Pald-in Capital In Excess 01 Common Stack

Solution

3. For $11,000 value of bonds , the entry will be Account title Debit Credit Bonds payable 11000 Paid in capital in excess of par 9625 Common stock 1375 Working: Each $1,000 bond to be converted into 25 shares of $5 par. Each share is valued at $40 per share ($1,000 / 25) Common stock will be $125 ($25*5) and paid in capital will be $875 ($35 * 5) Therefore for each $1,000 bond the entry will be Account title Debit Credit Bonds payable 1000 Paid in capital in excess of par 875 Common stock 125