Immediately after the last interest payment, Hoffman & Stuart Company converted $2,500,000 of its bonds into 250,000 shares of $10 par value common stock. The unamortized premium on the bonds at the date of conversion was $940,000. The entry to record the conversion would include:
A)liabilities decreased by $3,440,000 and stockholders' equity increased by $3,440,000.
B)liabilities decreased by $3,440,000 and stockholders' equity increased by $3,600,000.
C)liabilities decreased by $3,600,000 and stockholders' equity increased by $3,400,000.
D)liabilities decreased by $3,600,000 and stockholders' equity increased by $3,440,000.

Question

Quizplus · Accepted Answer

The bonds payable of $2,500,000 plus the unamortized premium of $940,000 results in a total decrease in liabilities of $3,440,000. The conversion increases stockholders' equity by the same amount, $3,440,000, as the bonds are converted into common stock.

Immediately After the Last Interest Payment, Hoffman & Stuart Company