Question

On July 1, 2008,bondholders converted bonds of Vebbz Corporation with a face value of $90,000 into 1,800 of its no par value common shares. On that date, these shares were being traded at $51 and there was a balance of $3,600 of discount on the bonds remaining unamortized. All interest has been recorded and paid up to that date. When the bonds had been issued, the equity portion of the issue was recorded at $850.

The balance of this unamortized discount amounted to 40% of the discount recorded on the date the bonds had been issued. Interest is paid on June 30 and December 31 and the bond discount is being amortized at $675 per interest period.

1.The journal entry that Vebbz was required to be made when these convertible bonds were issued.

a.

Cash ...   DR $90,850;  Bonds Payable   ...    CR $90,000;   Contributed Surplus - Conversion   ...    CR $850

b.

Cash ...   DR $87,250;  Bonds Payable   ...    CR $86,400;   Contributed Surplus - Conversion   ...    CR $850

c.

Cash ...   DR $81,850;  Bonds Payable   ...    CR $81,000;   Contributed Surplus - Conversion   ...    CR $850

d.

Cash ...   DR $90,850;  Bonds Payable   ...    CR $90,850

e.

Cash ...   DR $81,850;  Bonds Payable   ...    CR $81,850

Answer 1

A  balance of $3,600 of discount on the bonds remaining unamortized which amounted to 40% of the discount recorded on the date the bonds had been issued.

Which means Dicount on issue of bond was $9,000 [3600/40%]

There is equity portion of the issue was recorded at $850.

So correct entry is Option C.

Cash ...   DR $81,850

Bonds Payable   ...    CR $81,000

Contributed Surplus - Conversion   ...    CR $850