Question

On June 30, 2013, Blair Industries had outstanding $80 million of 8% convertible bonds that mature on

June 30, 2014. Interest is payable each year on June 30 and December 31. The bonds are convertible into

6 million shares of $10 par common stock. At June 30, 2013, the unamortized balance in the discount on

bonds payable account was $4 million. On June 30, 2013, half the bonds were converted when Blair's

common stock had a market price of $30 per share. When recording the conversion, Blair should credit

paid-in capital-excess of par:

A. $6 million.

B. $8 million.

C. $10 million.

D. $12 million.

Answer 1

Answer:

B) $8 million.

Explanation:

There are $80 worth of convertible bonds, since half of them were converted to common stocks = $80 million x 50% = $40 million

Common stock = 6 million shares x 50% x $10 (par value) = $30 million

Unamortized balance in bond discount = $4 million x 50% = $2 million

Additional paid-in capital = convertible bonds - common stock - unamortized bond discount = $40 million - $30 million - $2 million = $8 million

June 30, 2013, Bond convertion:

Dr Bonds payable 40,000,000

    Cr Common stock 30 ,000,000

    Cr Discount on bonds payable 2 ,000,000

    Cr Additional paid-in capital in excess of par value 8,000,000