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

On December 31, 2014, Herndon Corp. issues 51⁄2%, 10-year convertible bonds payable with a maturity 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 face value 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 balance sheet at December 31, 2016.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...