On February 28, 2022 after the semi-annual interest payment was made, Northstar Corp. had the following information available regarding its convertible bonds:

-$3,700,000 of convertible bonds outstanding.

-The bonds pay 8% interest semiannually on the last days of February and August.

-Each $1,000 bond is convertible into 32 common shares with no par value.

-On February 28, 2022, $99,900 of bonds were converted.

-Market value of the bonds on conversion date was 96. Market price of the common shares on conversion date was $37.

-Carrying value of the common shares on conversion date was $17.

-The Contributed surplus - convertible bonds options account had a balance of $490,000.

-The total unamortized discount on February 28, 2022 was $165,000.

-The remainder of the bonds were retired at maturity having never been converted.

-Northstar Corp. uses the book value method to record conversion and amortization of discount.

-Northstar Corp. uses the residual method to value and record the debt and equity components of the convertible debt when it was issued.

Required

a) Prepare the journal entry on February 28, 2022 to record bond conversion.

b) Assume now that in addition to the data presented in part a), that Northstar Corp. included an additional sweetener of $22,000 cash at the time of conversion. Prepare the journal entry to record the bond conversion.

c) Prepare the entry at maturity to retire the remaining bonds, assuming the final interest payment has been made and the maturity date is February 28.

Answer rating: 100% (QA)

a Journal entry to record bond conversion on February 28 2022 Date February 28 2022 Debit Convertible Bonds Payable 99900 Debit Contributed Surplus Co... View the full answer