Question

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a
a. credit of $217,600 to Paid-in Capital in Excess of Par.

b. credit of $192,000 to Paid-in Capital in Excess of Par.

c. credit of $89,600 to Premium on Bonds Payable.

d. loss of $12,800.

Answer 1

The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a  credit of $217,600 to Paid-in Capital in Excess of Par. Thee answer is A. 

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