Question

On July 1, 2018, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $6,000 unamortized discount on the bonds. Using the book value method, Parks would record:

Answer 1

Answer:

bonds payable   150,000 debit

         discount on BP            6,000 credit

         common stock         135,000 credit

         additional paid-in        9,000 credit

--to record conversion of bonds into share--

Explanation:

We compare the carrying value of the bonds with the book value of the shares:

150,000 bonds converted into 3,000 shares

value of the bonds: 150,000 - 6,000 discount = 144,000

BOOK value of the common       3,000 x 45   =  135,000

                                         additional paid-in          9,000