Piggie Company sold $4,000,000, 6-years, 8% first-mortgage bonds on January 1, 2023, with an effective interest rate of 6%. Interests were paid semi-annually, and the bonds were redeemable after June 30, 2025, to June 30, 2027, at 102, and thereafter until maturity at 100; and convertible into ordinary shares as follows:

• Until June 30, 2024, at the rate of six shares for each $1,000 bond.
• From July 1, 2024, to June 30, 2026, at the rate of five shares for each $1,000 bond.
• After June 30, 2026, at the rate of four shares for each $1,000 bond.

Assuming the company used the with-and-without method to account for the bond sale and book value approach for the conversion. A similar debt instrument without the option feature is issued at 10% yield.

Required:

1. 1. Prepare the journal entry to record the issuance of the bonds on January 1, 2023.
2. 2. Prepare the journal entry to record the conversion of $1,000,000 bonds into ordinary shares on June 30, 2024. The market price of the ordinary share is $50 per share.
3. 3. Prepare the journal entry to record the redemption of $1,200,000 face value of bonds on December 31, 2025.

Answer rating: 100% (QA)

1 Journal Entry for Bond Issuance on January 1 2023 To record the issuance of the bonds you need to ... View the full answer