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Convertible Bonds: ABC Corporation had two issues of securities outstanding.

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ABC Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2007, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Quayle credit to the account "paid-in capital in excess of par," as a result of this conversion?
a. $330,000.
b. $160,000.
c. $1,440,000.
d. $720,000.

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Solution Summary

The solution explains the calculations and entries made when convertible bonds are converted.

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Total unamortized bond discount is 1,000,000

Unamortized discount applicable to 2,400,000 of bonds ...

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