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Sun corp issues $100,000 convertible bonds at a premium. Bonds are convertible into 2,000 shares of...

Sun corp issues $100,000 convertible bonds at a premium. Bonds are convertible into 2,000 shares of common stock (par$40). At the time of conversion, the bonds have a FMV of $110,000, common stock has a FMV of $60 per share and unamortized premium on bonds is $2,000. What is the amount of paid in capital in excess of par on common stock upon coversion?

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Answer #1

Par value of bonds = $100,000

Unamortized bond premium = $2,000

Number of common shares to be issued = 2,000

Par value of 1 common share = $40

Total amount to be credited to common stock at the time of conversion = Number of common shares to be issued x Par value of 1 common share

= 2,000 x 40

= $80,000

Total amount to be credited to paid in capital in excess of par on common stock upon conversion = Par value of bonds + Unamortized bond premium - Total amount to be credited to common stock at the time of conversion

= 100,000 + 2,000 - 80,000

= $22,000

FMV of bonds and common stock is not relevant at the time of conversion.

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