On January 1, 2018, Mesa Machinery Corporation issued 75 of 12-year, 12% convertible bonds at par. Each

Question:

On January 1, 2018, Mesa Machinery Corporation issued 75 of 12-year, 12% convertible bonds at par. Each bond had a par value of $1,000 and pays interest annually on December 31. Because the bonds were issued at par, the yield on the bond is also equal to 12%. Each $1,000 bond converts into 2 5 shares of $1 par value common stock at the option of the bondholder beginning 2 years after the date of issue. Bond issue costs are $480. The market price of the common stock on the issue date was equal to $60 per share. Any discount is amortized using the effective interest rate method.

Required

a. Prepare the journal entry to record the bond issuance.

b. Find the effective rate of interest after considering bond issue costs. Prepare the amortization table using the new effective rate of interest and the effective interest rate method.

c. Prepare the journal entries to record the interest payment for the first 3 years.

d. Prepare the entry to record the bond conversion assuming that all bonds convert at the end of tile bird year.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...

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