Question

Concord Corporation has $4080000 of 7% 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, 2021, the holders of $1220000 bonds exercised the conversion privilege. On that date the market price of the bonds was 106 and the market price of the common stock was $37. The total unamortized bond premium at the date of conversion was $271000. Concord should record, as a result of this conversion, a

A	credit of $203300 to Paid-in Capital in Excess of Par.

B	credit of $177700 to Paid-in Capital in Excess of Par.

C	credit of $86720 to Premium on Bonds Payable.

D	loss of $12200.

Answer 1

Par value of bonds = $1,220,000

Par value of 1 bond = $1,000

Number of bonds = Par value of bonds/Par value of 1 bond =

= 1,220,000/1,000

= 1,220

1 bond is convertible into 30 shares.

Number of common shares to be issued = Number of bonds x 30

= 1,220 x 30

= 36,600

Par value of 1 common share = $30

Amount to be credited to common stock = Number of common shares to be issued x Par value of 1 common share

= 36,600 x 30

= $1,098,000

Unamortized bond premium = $271,000

Unamortized bond premium on bonds to be converted = $271,000 x 1,220,000/4,080,000

= $81,300

Amount to be credited to paid in capital in excess of par = Par value of bonds+Unamortized bond premium on bonds to be converted-Amount to be credited to common stock

= 1,220,000+81,300-1,098,000

= $203,300

A	credit of $203300 to Paid-in Capital in Excess of Par.

Correct option is A.