Dakar Inc.has $3,000,000 (par value), 8% convertible bonds outstanding.Each $1,000 bond is convertible into thirty no par value common shares.The bonds pay interest on January 31 and July 31.On July 31, 2017, the holders of $900,000 worth of bonds exercised the conversion privilege.On that date the market price of the bonds was 105, the market price of the common shares was $36, the carrying value of the common shares was $18 and the Contributed Surplus-Conversion Rights account balance was $450,000.The total unamortized bond premium at the date of conversion was $210,000.Using the book value method, Dakar should record, as a result of this conversion,
A)no gain or loss.
B)a loss of $9,000.
C)other comprehensive income of $9,000.
D)a gain of $18,000.

Question

Quizplus · Accepted Answer

Under the book value method, no gain or loss is recognized when bonds are converted into equity. The carrying amount of the bonds is transferred to equity.

Dakar IncHas $3,000,000 (Par Value), 8% Convertible Bonds Outstanding