Von Surf Co. issued $1,200,000 of convertible 10-year debentures on July 1, 2010. The debentures provide for

Question:

Von Surf Co. issued $1,200,000 of convertible 10-year debentures on July 1, 2010. The debentures provide for 8% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $18,000, which is being amortized monthly on a straight-line basis.

The debentures are convertible after one year into nine shares of the Von Surf Co.’s $1 par value common stock for each $1,000 of debentures.

On August 1, 2011, $200,000 of debentures were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. Accrued interest on debentures is paid in cash upon conversion.

Instructions:

Prepare the journal entries to record the conversion, amortization, and interest in connection with the debentures as of August 1, 2011, August 31, 2011, and December 31, 2011, including closing entries for year-end. No gain or loss is to be recognized on the conversion.

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... 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... 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,...