On January 1, Year 1, Acorn Financial Corp. issued 850convertible bonds. Each $1,000 face value bond is convertible into5 shares of common stock. The bonds have a 10 year term to maturityand pay interest semiannually. Acorn's common stock has a par valueof $20.00 per share. The bonds have a stated interest rate of 4%and pay interest semiannually. The convertible bonds were sold for$875,500. Bond issue costs of $50,000 will be subtracted from thebond sale proceeds to be received by Acorn. The bonds were sold toyield a market interest rate of 3%. Acorn will use the effectiveinterest method to amortize the bond discount and/or premium. Roundall amounts to the nearest dollar.
1.Record the journal entry for the issuance of the convertiblebonds on January 1, Year 1.
2.Record the journal entries on June 30, Year 1 to recognizeinterest expense and the amortization of the bond issue cost forthe first six months of Year
On January 1, Year 1, Acorn Financial Corp. issued 850convertible bonds. Each $1,000 face value bond is convertible into5 shares of common stock. The bonds have a 10 year term to maturityand pay interest semiannually. Acorn's common stock has a par valueof $20.00 per share. The bonds have a stated interest rate of 4%and pay interest semiannually. The convertible bonds were sold for$875,500. Bond issue costs of $50,000 will be subtracted from thebond sale proceeds to be received by Acorn. The bonds were sold toyield a market interest rate of 3%. Acorn will use the effectiveinterest method to amortize the bond discount and/or premium. Roundall amounts to the nearest dollar.
1.Record the journal entry for the issuance of the convertiblebonds on January 1, Year 1.
2.Record the journal entries on June 30, Year 1 to recognizeinterest expense and the amortization of the bond issue cost forthe first six months of Year
