Question

Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is

Answer 1

Answer and Explanation:

The journal entry to record the conversion is shown below:

Bonds Payable $30,000

Premium on Bonds Payable 9,600

       To Common Stock $20,000  (4,000 shares × $5)

       To Paid-in Capital in Excess of Par 19,600

(Being the conversion is recorded)

Here the bond payable and premium on bond payable is debited as decreased the liabilities while on the other hand the common stock and additional paid in capital is credited as it increased the equity