Question

On January 1, the $3,000,000 par value bonds of Spitz Company with a carrying value of $3,000,000 are converted to 1,000,000 shares of $1 par value common stock. Record the entry for the conversion of the bonds.

Answer 1

Answer:

Dr bonds payable     $3,000,000

Cr common stock                                                                                 $1,000,000

Cr paid in capital in excess of par val.-common stock($3m-$1m)   $2,000,000

Explanation:

The conversion means that the bonds payable account is debited since the obligation has now been settled by a way of giving common stock in lieu.

The credit entries would comprise of par value of the conversion which is $1 par value multiplied by number of common stock of 1,000,000 which gives $1,000,000 while the remaining balance is credited to paid-in capital in excess-common stock