Response to the following problem:
Jacobs-Cathey Company issued $700,000 of 15-year, 8 1/2% bonds payable on July 31, 20X3, at a price of 98. The bonds may be converted into the company's common stock. Each $1,000 maturity amount of the bonds is convertible into 40 shares of $20 par stock. On July 31, 20X9, bondholders converted bonds into common stock.
Required:
1. What would cause the bondholders to convert their bonds into common stock?
2. Without making journal entries, compute the carrying amount of the bonds payable at July 31, 20X9. Jacobs-Cathey uses the straight-line method to amortize bond discount.
3. All amortization has been recorded properly. Journalize the conversion transaction at July 31, 20X9. No explanation is required.