On April 1, 1998, Miromar Tool Company authorized the sale of $8,000,000 of 7% convertible bonds with interest payment dates of April 1 and October 1. The bonds were sold on July 1, 1998, and mature on April 1, 2018. The bond discount totaled $426,600. The bond contract entitles the bondholders to receive 25 shares of $1 par value common stock in exchange for each $1,000 bond. On April 1, 2008, the holders of bonds with total face value of $1,000,000 exercised their conversion feature. On July 1, 2008, Miromar Tool Company reacquired bonds, face value $500,000, on the open market. The balances in the equity accounts as of December 31, 2007, were

Common stock, $1 par, authorized 3 million shares,
issued and outstanding, 250,000 shares . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000

Market values of the common stock and bonds were as follows:

Instructions:
Prepare journal entries on the issuer€™s books for each of the following transactions.
1. Sale of the bonds on July 1, 1998.
2. Interest payment on October 1, 1998.
3. Interest accrual on December 31, 1998, including bond discount amortization.
4. Conversion of bonds on April 1, 2008. (Assume that interest and discount amortization are correctly shown as of April 1, 2008. No gain or loss on conversion is recognized.)
5. Reacquisition and retirement of bonds on July 1, 2008. (Assume that interest and discount amortization are correctly reported as of July 1,2008.)

Transcribed Image Text:

Bonds (per $1,000) $1,220 1,250 Common Stock (per sharel) $47 Date April , 2008 July 1, 2008 51