Question

Finks Co. has $2,500,000 (face value) of 8% convertible bonds outstanding which were issued at a premium. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on December 31. On December 31, 2020, the holders of 40% of the bonds exercised the conversion privilege. On that date, the market price of the common stock was $36. The total unamortized bond premium at the date of conversion (after the journal entry to record the payment of interest and the amortization of premium was prepared) was $175,000.

Prepare the entry to record the conversion of the bonds on December 31, 2020.  

Answer 1

Journal Entry
Date	Account Titles	Debit $	Credit $
December 31,2020	8% Convertible Bonds ( 2,500,000 x 40% )	1,000,000
	Bond Premium ( 175,000 x 40% )	70,000
	Loss on Conversion of Bonds ( Balancing Figure )	10,000
	Common Stock { ( 1,000,000 / 1,000 x 30 ) x 30 }		900,000
	Paid in Capital in excess of par value-Common Stock		180,000
	{ ( 1,000,000 / 1,000 x 30 ) x 6 }