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?
Total unamortized bond discount is 1,000,000
Unamortized discount applicable to 2,400,000 of bonds ...
The solution explains the calculations and entries made when convertible bonds are converted.