Question

Splish Corporation has outstanding 2,200 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2020, when the unamortized discount is $21,200 and the market price of the stock is $21 per share.
Record the conversion using the book value approach.

Answer 1

Answer:

The book value method is a technique for recording the conversion of a bond into stock. In essence, the book value at which the bonds were recorded on the books of the issuer is shifted to the applicable stock account. Here, the journal entry for Splish Corporation of the conversion of the bonds would be,

Account Title                                                              Debit        Credit

Bonds Payable (2,200 bonds x $1000).................2,200,000

Discount on Bonds Payable...............................................................21,200

Common Stock (50 shares x $10 x 2200 bonds).......................1,100,000

Paid in Cash in excess of Par

- Common Stock.................................................................................1,078,800