The Cessna Aircraft Company has outstanding an issue of 8% convertible bonds that mature in 2018. Suppose the bonds are dated October 1, 2008, and pay interest each April 1 and October 1.
Required
1. Complete the following effective interest amortization table through October 1, 2010. Bond Data
Maturity (face) value—$100,000 Stated interest rate—8% Interest paid—4% semiannually, $4,000 $100,000 × 0.08 × 6/12) Market interest rate at the time of issue—9% annually, 4 1/2% semiannually Issue price—93.5
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Amortization Table |
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A |
B |
C |
D |
E |
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Semiannual Interest Date |
Interest Payment (4% of Maturity Amount) |
Interest Expense (4½% of Preceding Bond Carrying Amount) |
Discount Amortization (B A) |
Discount Account Balance (Preceding D C) |
Bond Carrying Amount($100,000 D) |
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10 1 08 |
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4 1 09 |
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10 1 09 |
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4 1 10 |
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10 1 10 |
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2. Using the amortization table, record the following transactions:
a. Issuance of the bonds on October 1, 2008.
b. Accrual of interest and amortization of the bonds on December 31, 2008.
c. Payment of interest and amortization of the bonds on April 1, 2009.
d. Conversion of one third of the bonds payable into no par stock on October 2, 2010. For no par stock, transfer the bond carrying amount into the Common Stock account. There is no Additional Paid in Capital account.
e. Retirement of two thirds of the bonds payable on October 2, 2010. Purchase price of the bonds was based on their call price of 102.