Question

On July 1, 2021, an interest payment date, $147000 of Coronado Industries bonds were converted into 2920 shares of Coronado Industries common stock each having a par value of $45 and a market value of $52. There is $6200 unamortized discount on the bonds. Using the book value method, Coronado would record

A	a $11040 increase in paid-in capital in excess of par

B	a $4840 increase in paid-in capital in excess of par

C	no change in paid-in capital in excess of par

D	a $9400 increase in paid-in capital in excess of par

Answer 1

Par value of bonds = $147,000

Unamortized bond discount = $6,200

Number of common shares issued = 2,920

Par value of 1 commons share = $45

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

= 2,920 x 45

= $131,400

Amount to be credited to paid in capital in excess of par = Par value of bonds- Unamortized bond discount- Amount to be credited to common stock

= 147,000-6,200-131,400

= $9,400

Hence, using book value method, Coronado would record :

D	a $9400 increase in paid-in capital in excess of par

Correct option is D.

Kindly comment if you need further assistance.

Thanks‼!