Question

On January 1, 2016, Gless Textiles issued $24 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 15% of the issue as an investment.3. On July 1, 2021, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)1. Record the entry for Gless regarding the conversion of the bonds.2. Record the entry for Century regarding the conversion of the bonds.

Answer 1

Answer and Explanation:

The Journal entries are shown below:-

1. Convertible bonds payable Dr, $3,600,000

Premium bonds payable Dr, $16,200

              To common stock $3,616,700

(Being conversion of the bonds is recorded)

Working note:

Issue price of the convertible bonds $3,636,000

($24,000,000 × 15% × 101%)

Less: Par value of the bonds              $3,600,000

($24,000,000 × 15% × 100%)

Premium on bonds payable                $36,000

less: Premium on bonds payable

amortized                                              $19,800

($26,000 × 11 ÷ 20)

Available Balance                                 $16,200

2. Investment in common stock Dr, $3,616,200

              To Investment in convertible bonds $3,616,200

              To Premium on bond investment $16,200

(Being conversion of the bonds is recorded)