If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is
A) Bonds Payable 70,000 Common Stock 70,000
B) Bonds Payable 60,000 Premium on Bonds Payable 10,000
Common Stock 70,000
C) Bonds Payable 60,000 Premium on Bonds Payable 10,000
Common Stock 45,000
Paid-in Capital in Excess of Par 25,000
D) Bonds Payable 70,000 Discount on Bonds Payable 10,000
Common Stock 45,000
Paid-in Capital in Excess of Par 15,000

Question

Quizplus · Accepted Answer

The carrying value of the bonds is $70,000, which is the amount that needs to be accounted for in the conversion. The par value of the common stock is $5 per share, so 9,000 shares would have a par value of $45,000. The remaining $25,000 is the premium on the bonds payable, which is recorded in the stockholders' equity section as Paid-in Capital in Excess of Par. Therefore, the entry to record the conversion is Bonds Payable $60,000, Premium on Bonds Payable $10,000, Common Stock $45,000, Paid-in Capital in Excess of Par $25,000.

If Sixty $1,000 Convertible Bonds with a Carrying Value of $70,000