Asked by Facienne Guerlanda on May 12, 2024
Verified
On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:
A) Debit to Bonds Payable $310,000.
B) Debit to Premium on Bonds Payable $10,000.
C) Credit to Common Stock $250,000.
D) Credit to Paid-In Capital in Excess of Par Value,Common Stock $60,000.
E) Debit to Bonds Payable $300,000.
Bonds Payable
Long-term liabilities representing money owed by a company to bondholders, to be paid back at a future date.
Common Stock
A type of equity security that represents ownership in a corporation, giving shareholders voting rights and a share in the company's profits via dividends.
Premium on Bonds Payable
The amount by which the bond's selling price exceeds its face value.
- Examine the economic consequences and accounting entries necessary for bond conversion transactions.
Verified Answer
HB
Hannah BrowneMay 18, 2024
Final Answer :
A
Explanation :
The conversion of bonds to common stock involves debiting the Bonds Payable account for the par value of the bonds being converted ($300,000) and crediting the Common Stock and Paid-In Capital accounts for the fair value of the shares issued ($250,000 and $60,000, respectively). The Premium on Bonds Payable account is no longer needed, as the bonds have been fully converted, so there is no need to debit it for the remaining $10,000 carrying value. Therefore, option A (Debit to Bonds Payable $310,000) is not necessary.
Learning Objectives
- Examine the economic consequences and accounting entries necessary for bond conversion transactions.