On December 31, 2014, Herndon Corp. issues 512%, 10-year convertible bonds payable with a maturity value of

Question:

On December 31, 2014, Herndon Corp. issues 51⁄2%, 10-year convertible bonds payable with a value of $4,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 6%. Herndon Corp. amortizes bond discount by the effective-interest method.

Requirements
1. Use the PV function in Excel to calculate the issue price of the bonds.
2. Using Exhibit 9-4 of the bond discount as a model, prepare an effective-interest method amortization table for the term of the bonds.
3. Journalize the following transactions:
a. Issuance of the bonds on December 31, 2014. Credit Convertible Bonds Payable.
b. Payment of interest and amortization of the bond discount on June 30, 2015.
c. Payment of interest and amortization of the bond discount on December 31, 2015.
d. Conversion by the bondholders on July 1, 2016, of bonds with of $1,600,000 into 120,000 shares of Herndon Corp.’s $1-par common stock.
4. Show how Herndon Corp. would report the remaining bonds payable on its at December 31, 2016.

Balance Sheet
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