Explore BrainMass

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

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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.

#### 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