Using the information provided in E14- 13, complete the following requirements, assuming that the effective rate of interest for convertible bonds is 4% on the date of issue.
In E14-13
On January 1, 2016, Mobile Technology, Incorporated issued $ 850,000 of $ 1,000 par value, 6%, six- year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2016. The market rate of interest for similar non-convertible bonds on the date of the bond issue was 10%. However, because these bonds are convertible, the effective rate is 8%. Each bond is convertible into 20 shares of Mobile Technology’s $ 2 par value common stock.
Required
a. Determine the issue price of the debt.
b. Prepare the amortization table for the bond issue assuming that Mobile Technology uses the effective interest rate method of amortization.
c. Prepare the journal entry when Mobile Technology issued the bonds.
d. Prepare the journal entry to record the first interest payment.
e. The bonds converted on January 1, 2019. Prepare the journal entry to record the bond conversion.