Final answer:
The answer is B. a $18,000 increase in paid-in capital in excess of par. Using the book value method, James Co. would record a $18,000 increase in paid-in capital in excess of par. This is calculated by subtracting the unamortized discount from the face value of the bonds to get the book value of the bonds, and then comparing it to the book value of the common stock issued.
Step-by-step explanation:
To determine how James Co. would record the conversion of bonds into common stock using the book value method, we need to look at the par value of the common stock, the market value, and the unamortized discount on the bonds. Since the $6,000 unamortized discount is part of the book value of the bonds, we need to subtract it from the face value of the bonds ($150,000) to get the correct book value.
First, we calculate the book value of the bonds that are being converted:
Book value of bonds = Face value of bonds - Unamortized discount = $150,000 - $6,000 = $144,000.
Next, we calculate the book value of the stocks being issued:
Book value of stocks = Number of shares × Par value per share = 2,800 shares × $45 = $126,000.
Any difference between the book value of the bonds and the book value of the stocks is adjusted in the paid-in capital in excess of par. Therefore, the increase in paid-in capital in excess of par is the difference between the book value of the bonds and the book value of the shares:
Increase in paid-in capital in excess of par = Book value of bonds - Book value of stocks = $144,000 - $126,000 = $18,000.