Question

Nolan Corporation has outstanding convertible bonds with a face value of $15,000 and a current book value if $17,000. Each $1,000 bond is covetable into 25 shares if common stock (par value $5 per share). All the bonds are converted into common stock on June 1 when the market value of Nolan's common stock is $50 per share.

Using the book value method, prepare the journal entry for Nolan to record the conversion.

Answer 1

Answer

In the books of Nolan Corporation

(in $)

Date

Particulars

Amount

Amount

1st June

Bond

15000

(Par Value)

Bond Premium

2000

(Premium)

To

Common Stock

1875

=15000/1000*25*5

i.e. no. of shares issued * par value

To

Additional Paid in Capital

15125

=17000-1875

(being convertible bond converted into common stock)

Note:

As we are following book value method market value of Nolan's common stock to be ignored