On July 1, 2020, an interest payment date, $ 180,000 (par value) of Lusaka Corp. bonds were converted into 3,600 of their no par common shares. At this time, the unamortized discount on the bonds was $ 7,200. When the bonds were originally issued, the equity portion of the bond was valued at $ 1,700. Using the book value method, Lusaka would record
A) an $ 174,500 increase in Common Shares.
B) an $ 172,800 increase in Common Shares.
C) an $ 171,100 increase in Common Shares.
D) no change to Contributed Surplus.

Question

Quizplus · Accepted Answer

The book value method records the bonds at their carrying value, which is par value minus unamortized discount. The carrying value of the bonds is $180,000 - $7,200 = $172,800. The common shares are recorded at their par value, which is $0. The increase in common shares is $172,800 - $0 = $172,800.

On July 1, 2020, an Interest Payment Date, $ 180,000