Conversion of Bonds

E16-6 (Conversion of Bonds) On January 1, 2014, Gottlieb Corporation issued $4,000,000 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 eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2015.

On January 1, 2016, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2016. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date.

Bond premium is amortized using the effective-interest method.

Instructions

Make the necessary journal entries for:

(a) December 31, 2015. (c) March 31, 2016.

(b) January 1, 2016. (d) June 30, 2016.

Record the conversions using the book value method.