On January 1 2018 Fowl Products issued 77 million of 7 10yea

On January 1, 2018, Fowl Products issued $77 million of 7%, 10-year convertible bonds at a net price of $78.3 million. Fowl recently issued similar, but nonconvertible, bonds at 97 (that is, 97% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 25 shares of Fowl’s no par common stock. Fowl records interest by the straight-line method.
  
On June 1, 2020, Fowl notified bondholders of its intent to call the bonds at face value plus a 2% call premium on July 1, 2020. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Fowl paid the semiannual interest and issued the requisite number of shares for the bonds being converted.

Required:
1. Prepare the journal entry for the issuance of the bonds by Fowl.
2. Prepare the journal entry for the June 30, 2018, interest payment.
3. Prepare the journal entries for the June 30, 2020, interest payment by Fowl and the conversion of the bonds (book value method).

Solution

Accounts Title Dr Cr 1) Cash 78300000 Event 1 Convertible Bonds Payable (77000000*97/100) 74690000 Equity-Conversion option (bal fif) 3610000 2) Interest expenses 154000 Event 1 Convertible Bonds payable (231000/20 period) 115500 Cash (7700000*3.5%) 269500 Discount on Bonds Payable (77000000-74690000) 2310000 3) Event 1 Interest expenses 154000 Convertible Bonds payable (231000/20 period) 115500 Cash (7700000*3.5%) 269500 2) Convertible Bonds payable 75267500 Equity-Conversion Option 3610000 Common Stock 78877500 working Convertible Bonds payable 74690000 Add: Amortization for 5 period (115500*5) 577500 Balance at converiosn 75267500 If any doubt please comment