Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is
A) Bonds Payable 39,600 Common Stock 20,000
Paid-in Capital in Excess of Par 19,600
B) Bonds Payable 30,000 Premium on Bonds Payable 9,600
Common Stock 30,000
Paid-in Capital in Excess of Par 3,600
C) Bonds Payable 30,000 Premium on Bonds Payable 9,600
Common Stock 20,000
Paid-in Capital in Excess of Par 19,600
D) Bonds Payable 39,600 Common Stock 36,000
Paid-in Capital in Excess of Par 3,600

Question

Quizplus · Accepted Answer

When converting bonds into common stock, the carrying value of the bonds is transferred to the common stock account, and any excess is recorded as paid-in capital in excess of par.

First, we need to determine the carrying value of the bonds:
30 bonds x $1,000 = $30,000
Premium on bonds payable = $39,600 - $30,000 = $9,600

Next, we calculate the number of shares issued:
30 bonds x $1,000 = 30,000
$30,000 / $5 par value per share = 6,000 shares
6,000 shares x 4,000 shares = 4,000 shares

Therefore, the journal entry is:

Bonds Payable                      $30,000
Premium on Bonds Payable  $9,600
Common Stock                    $20,000
Paid-in Capital in Excess of Par  $19,600

Note that the market value of the common stock is not used in the journal entry. It is only provided to give additional information about the company's financial position.

Thirty $1,000 Bonds with a Carrying Value of $39,600 Are