Sedge Corporation issued $1,000,000 of 10% convertible bonds for $1,040,000on April 1, 2016. The bonds are dated April 1, 2016, pay interest semiannually on September 30 and March 31, and the premium is amortized using the straight-line method. The bonds are due March 31, 2026, and each $1,000 bond is convertible into 20 shares of Sedge's $10 par common stock. On April 1, 2018, when the shares were selling for $30 per share, $300,000 of the bonds were converted. On October 1, 2020, when the shares were selling for $32 per share, the remainder of the bonds were converted.
 
Required:
1. Prepare the journal entries to record each bond conversion using the book value method.
2. Prepare the journal entries to record each bond conversion using the market value method.
3. For just the April 1, 2018 conversion, compute the debt-to-equity ratio right before and right after the conversion under the book value method. Assume the company's other liabilities are $2.6 million, and that shareholders' equity before conversion is $3 million.
4. For just the April 1, 2018 conversion, compute the debt-to-equity ratio right before and right after the conversion under the market value method. As in #3 above, assume the company's other liabilities are $2.6 million, and that shareholders' equity before conversion is $3 million.

Answer rating: 100% (QA)

Question Stepbystep explanation The following entry was made on April 1 2016 Debit Cash1040000 Credi... View the full answer