On December 31, 2016, Zenith Corp. issues 7%, 10-year convertible bonds payable with a maturity value of $2,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 9%. Zenith 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 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, 2016. Credit Convertible Bonds Payable.
b. Payment of interest and amortization of the bond discount on June 30, 2017.
c. Payment of interest and amortization of the bond discount on December 31, 2017.
d. Conversion by the bondholders on July 1, 2018, of bonds with face value of $800,000 into 70,000 shares of Zenith Corp. $ 1 -par common stock.
4. Show how Zenith Corp. would report the remaining bonds payable on its balance sheet at December 31, 2018.