Question

PayPow Corp. has outstanding 8,000, $1,000 bonds. Each bond is convertible into 100 shares of $1 par value common stock. The bonds are converted on December 31, 2017 when the unamortized discount on the bonds is $60,000 and the market price of the stock is $30 per share.

The journal entry to record the conversion would require a:

Select one:

Credit to common stock of $24,000,000

Debit to discount on bonds payable of $60,000

Credit to paid in capital of $7,260,000

Credit to discount on bonds payable of $60,000

Answer 1

The correct answer will be option (d) Credit to discount on bonds payable of $60,000. It is because the journal entry to record the conversion will be:

Particulars	Debit ($)	Credit ($)
Bonds payable (8,000*$1,000)	$8,000,000
Discount on bonds payable		$60,000
Common stock (8,000*100*$1)		$800,000
Paid-in capital in excess of par-Common stock($8,000,000-$60,000-$800,000)		$7,140,000

The other options (a), (b) and (c) are not correct because of the above journal entry.