Question

Hoffman Corporation issued $55 million of 8%, 10-year bonds at 102. Each of the 55,000 bonds was convertible into one share of $1 par common stock. Prepare the journal entry to record the issuance of the bonds. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Dr Cash 56.1

Cr Premium on bonds payable 1.1

Cr Convertible bonds payable 55.0

Explanation:

Hoffman Corporation

Journal entry

Dr Cash 56.1

Cr Premium on bonds payable 1.1

Cr Convertible bonds payable 55.0

GAAP requires that the entire issue price of convertible bonds be recorded as debt, precisely the same way, as for nonconvertible bonds.

Therefore:

Cash (102% × $55 million) = $56.1 million