Question - On January 1, 2010, Slug Corporation issued $6 million of 8%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of $1 par common stock. Fuzz Company purchased 20% of the issue as an investment. On July 1, 2014, Fuzz converted all of its bonds into common stock of Slug. The market price per share for Slug was $32 at the time of the conversion. Both companies use the straight-line method for amortization.
Required:
1. Prepare journal entries for the issuance of the bonds on the issuer and the investor books.
2. Prepare the journal entries for the conversion on the books of the issuer and the investor.