The Following Events Relate to Mathers Corporation's Issue of Convertible

question 142

Essay

The following events relate to Mathers Corporation's issue of convertible debentures:
· On January 1, 2015, the Mathers Corporation issued $500,000 of 12% convertible bonds for
$460,000. The bonds are due on January 1, 2025, and interest is paid on July 1 and January
1. Each $1,000 bond is convertible into 30 shares of common stock with a par value of $1 per share. On the date of bond issuance, a share of common stock was selling at $24.
· On January 2, 2017, 12% convertible bonds with a face value of $300,000 were converted into common stock. The market value of the common stock on the date of conversion was
$40 per share. Mathers uses the straight-line method to amortize premiums and discounts.
Required:
a. Prepare the journal entry to record the issuance of the convertible bonds.
b. Record the conversion on January 2, 2017, using:
1) the book value method
2) the market value method
c. Assuming that any gain or loss on conversion is material, how would it be disclosed in the financial statements?

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Definitions:

Competitors

Entities or individuals that are in rivalry against others for the same objective, such as a market share or a race to a finish line.

Consumer Groups

Organized groups of individuals who come together to champion the rights and interests of consumers, often by advocating for safer, more effective, or less costly products and services.

Mutual Obligation

A reciprocal agreement where each party has duties or responsibilities towards the other, typically seen in contracts or social relationships.

Developing Countries

Nations with a lower standard of living, underdeveloped industrial base, and low Human Development Index relative to other countries.