Question

If bonds for Crayon Corporation, with a face value of $150,000, are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to(A) Discount on Bonds Payable for $15,000.(B) Bonds Payable for $135,000.(C) Bonds Payable for $150,000.(D) Bonds Payable equal to the market price of the bonds on the date of conversion.(E) none of the above

Answer 1

Answer:

(C) Bonds Payable for $150,000

Explanation:

the face value of the bonds will the value at which bonds payable account enter the accounting. Then, there is a discount which decrease the net value of the bonds:

Bonds Payable        150,000 credit

Discount on bonds   15,000  debit

When the bonds are converted, we will write-off these account against common stock and additional paid-in

To wirte-off the account we need to post them in the other side so we got:

Bonds payable debit 150,000 debit

       Discount on bonds         15,000 credit

      Common Stock                       xx credit

      Additional paid.in                    xx credit

These makes option C correct