Question

General Question/Exercise 14-15 Bond Conversion On June 30, 2019, an interest payment date, $200,000 of Guadalupe. bonds were converted into shares of common stock each having a par value of $5 and a market value of $54. The conversion ratio is 25 shares of common stock for every $1,000 of bonds. There is a remaining $9,000 unamortized discount on the bonds. Using the book value method, the company would record a. no change in paid-in capital in excess of par. b. an $166,000 increase in paid-in capital in excess of par. c. a $245,000 increase in paid-in capital in excess of par. d. a $9,000 increase in paid-in capital in excess of par. e. none of the above

Answer 1

Answer:

b. an $166,000 increase in paid-in capital in excess of par.

Explanation:

first we check how many shares are issued:

200,000 / 1,000 = 200 x 25 = 5,000 new share.

then we calcualte the comon stock:

5,000 x 5 = 25,000

the carrying value ofthe common stock:

200,000 - 9,000 = 191,000

the bondholders contribute with the bonds, which are valued at 191,000 for 25,000 common stock. the difference will be paid in.

191,000 - 25,000 = 166,000

bonds payable 200,000

discount on bond payable 9,000

common stock 25,000

additional paid-in 166,000