Asked by Kiara Venegas on Jul 28, 2024
Verified
Refer to Exhibit 14-9.The entry to record the conversion using the market value method would include a
A) debit to Additional Paid-in Capital from Bond Conversion for $105, 000
B) debit to Retained Earnings for $105, 000
C) debit to Loss from Conversion for $105, 000
D) credit to Gain from Conversion for $105, 000
Straight-line Amortization
The method of gradually reducing the cost of an intangible asset over its useful life in a uniform manner.
Market Value Method
The market value method is a valuation method used to assess the value of an asset based on its current market price.
Bond Conversion
The process of converting a convertible bond into a specific number of shares of the issuer's common stock.
- Distinguish among diverse bond conversion strategies and their implications on financial reporting.
Verified Answer
EC
Erica CajamarcaJul 28, 2024
Final Answer :
C
Explanation :
The market value method of accounting for the conversion of bonds into stock recognizes a loss if the market value of the stock issued is greater than the carrying amount of the bonds converted. In this case, the market value of the stock ($14 per share for 100 shares per bond for half of the $500,000 bonds) exceeds the book value of the bonds being converted, leading to a loss.
Learning Objectives
- Distinguish among diverse bond conversion strategies and their implications on financial reporting.