Question: Selkirk Inc. issued a 10-year bond on July 1, 2017. The $20,000,000 par bond pays $600,000 of interest on December 31 and June 30. The

Selkirk Inc. issued a 10-year bond on July 1, 2017. The $20,000,000 par bond pays $600,000 of interest on December 31 and June 30. The company has a calendar year-end.

It is now February 2021. During the audit of the 2020 financial statements, it was discovered that the bond indenture allowed holders to convert the bonds to common shares. The terms of the conversion allow each $1,000 bond to be converted into 50 shares. Additional investigation concluded that the bond would have yielded 10% per annum had it not included the conversion option.

Required:

Record any adjusting journal entries required to correct Selkirk’s accounts. The books for 2020 have not yet been closed.

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To correct Selkirks accounts we need to make two adjusting journal entries First we need to recognize the additional interest expense that Selkirk sho... View full answer

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