Convertible Bonds
Clarkston Inc. issued $1,000,000 of convertible 10 year, 11% bonds on July 1, 2007. The interest is payable semiannually on January 1 and July 1. The discount in connection with the issue was $9,500, which is amortized monthly using the straight line basis. The debentures are convertible after one year into five shares of the company’s $1 par common stock for each $1,000 of bonds. On August 1, 2008, $100,000 of the bonds were converted. Interest has been accrued monthly and paid as due. Any interest accrued at the time of conversion of the bonds is paid in cash. Prepare the journal entries on Clarkston’s books to record the conversion, amortization, and interest on the bonds as of August 1 and August 31, 2008. (Round to the nearest dollar.)