On December 31, 2012, Laraboo Corp. issues 11%, 10-year convertible bonds payable with a maturity value of

Question:

On December 31, 2012, Laraboo Corp. issues 11%, 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 12%, and the issue price of the bonds is 94.265. Laraboo Corp. amortizes bonds by the effective-interest method.

Requirements
1. Prepare an effective-interest method amortization table for the first four semiannual interest periods.
2. Journalize the following transactions:
a. Issuance of the bonds on December 31, 2012. Credit Convertible Bonds Payable.
b. Payment of interest and amortization of the bonds on June 30, 2013.
c. Payment of interest and amortization of the bonds on December 31, 2013.
d. Conversion by the bondholders on July 1, 2014, of bonds with of $1,600,000 into 90,000 shares of Laraboo Corp.’s $1-par common stock.
3. Show how Laraboo Corp. would report the remaining bonds payable on its at December 31, 2014.

Balance Sheet
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