Sheffield Corp. issued $7080000 of 11%, ten-year convertible bonds on July 1, 2020 at 96.1 plus accrued interest. The bonds were dated April 1, 2020 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2021, $1416000 of these bonds were converted into 600 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2020

Question

Clara Holloway

Business

13 June, 20:17

Sheffield Corp. issued $7080000 of 11%, ten-year convertible bonds on July 1, 2020 at 96.1 plus accrued interest. The bonds were dated April 1, 2020 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2021, $1416000 of these bonds were converted into 600 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2020

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Gauge Burke · Answer 1

The amount of the debit to "interest expense" on October 1, 2020 is $194,700

Explanation:

According to the given data we have the following:

Bond face value=$7,080,000

interest rate=11%

There are 3 months interest recognized from july to september, therefore, to calculate the amount of the debit to "interest expense" on October 1, 2020 we would have to make the following calculation:

amount of the debit to "interest expense" on October 1, 2020=$7,080,000*11%*3 months / 12 months

amount of the debit to "interest expense" on October 1, 2020=$194,700

The amount of the debit to "interest expense" on October 1, 2020 is $194,700