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    What should be reported as a result of the conversion of convertible bonds?

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    ABC Corp has $2,500,000 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, 2007, the holders of $800,000 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 $175,000. Jenks should record, as a result of this conversion, a

    a. credit of $136,000 to Paid-in Capital in Excess of Par.
    b. credit of $120,000 to Paid-in Capital in Excess of Par.
    c. credit of $56,000 to Premium on Bonds Payable.
    d. loss of $8,000.

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    Solution Preview

    The total unamortized bond premium is 175,000. The premium for $800,000 of bonds is
    175,000/2,500,000 X 800,000
    = 56,000.

    The carrying ...

    Solution Summary

    This solution provides the calculations and identifies the correct entry to make.

    $2.19

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