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

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?