On January 1, 2012, when its $30 par value common stock was selling for $80 per share, Gierach Corporation issued $10 million of 4 convertible debentures due in 10 years The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the companys $30 par value c...

Requirement 1 Journal entry to record the original issuance of the 10 million convertible bond at par DR Cash 10000000 CR Convertible bonds payable 10 ...

On January 1, 2012, when its $30 par-value common stock was selling for $80 per share, Gierach

Question:

On January 1, 2012, when its $30 par-value was selling for $80 per share, Gierach issued $10 million of 4% convertible due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company’s $30 par-value . Cash settlement upon conversion is not permitted. The were issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million.
On January 1, 2014, the company’s $30 par-value was split three for one.
On January 1, 2015, when the company’s $10 par-value was selling for $90 per share, holders of 40% of the convertible exercised their conversion options.

Required:
1. Following U.S. GAAP, prepare a journal entry to record the original issuance of the convertible .
2. How much interest expense would the company recognize on the convertible in 2012?
3. Prepare a journal entry to record the exercise of the conversion option.
4. Why do many companies use the book value method to record debt conversions?

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...