Lambda Limited issued $300,000 of 6%, 10 year, convertible bonds for proceeds of $288,000 on January 1, 2012.

Lambda Limited issued $300,000 of 6%, 10 year, convertible bonds for proceeds of $288,000 on January 1, 2012.  Similar non-convertible bonds could have been issued on that date to yield 8% to the purchasers.   The bonds can be called at any time for 110% of face value.  Each $1,000 bond is convertible into 20 shares of no par value common stock.  Interest rates have declined and Lambda is offering the bondholders $50 cash per bond as an incentive to convert.  Holders of 75% of the bonds accept the office on January 1, 2014, when the company’s common shares are selling for $55 per share.  Interest on the bonds is paid annually on December 31, each year.  Lambda uses the effective interest rate method of amortization and the book value method of recording conversions.

Required:

Prepare Lambda Limited’s journal entry to record the bond conversion on January 1, 2014.

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