On January 1, 2020, Bridgeport Corporation issued $3,740,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 8 shares of Bridgeport Corporation $100 par value common stock after December 31, 2021. On January 1, 2022, $374,000 of debentures are converted into common stock, which is then selling at $111. An additional $374,000 of debentures are converted on March 31, 2022. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Make the necessary journal entries for: (a) December 31, 2021. (c) March 31, 2022. (b) January 1, 2022. (d) June 30, 2022.

Bridgeport Corporation

Journal Entries:

(a) December 31, 2021.

Debit Interest on Debentures $149,600

Credit Cash $149,600

To record the interest expense and payment for the six months.

Debit Debentures Premium $3,740

Credit Interest on Debentures $3,740

To record the amortization of the debentures premium.

(b) January 1, 2022.

Debit Debenture $374,000

Credit Common Stock $299,200

Credit APIC $74,800

To record the conversion of debentures to shares.

(c) March 31, 2022.  

Debit Debenture $374,000

Credit Common Stock $299,200

Credit APIC $74,800

To record the conversion of debentures to shares.

Debit Interest on Debentures $67,320

Credit Interest Payable $67,320

To accrue interest for the quarter.

Debit Debentures Premium $1,870

Credit Interest on Debentures $1,870

To record the amortization of the debentures premium for the quarter.

(d) June 30, 2022.

Debit Interest on Debentures $59,840

Credit Interest payable $59,840

To accrue interest for the quarter.

Debit Debentures Premium $1,870

Credit Interest on Debentures $1,870

To record the amortization of the debentures premium for the quarter.

Debit Interest Payable $127,160

Credit Cash $127,160

To record payment of interest for the six months.

Explanation:

a) Data and Calculations:

Issue of 10-year 8% Convertible Debentures at 102 = $3,814,800 (Cash)

Debenture premium $74,800

Half-yearly premium amortization = $74,800/20 = $3,740

Face value = $3,740,000

b) Interest on Debenture = $3,740,000 * 8% * 1/2 = $149,600

c) $374,000 debentures converted into 8 shares for every $1,000.

= $374,000/1,000 * 8 = 2,992 shares at $100 par value

d) Interest on Debentures ($3,740,000 - $374,000) * 8% * 1/4

= $3,366,000 * 8% * 1/4 = $67,320

Plus

$3,366,000 - $374,000 * 8% * 1/4 = $59,840

Total interest = $127,160

explanation:

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