Question

Vale Company has bonds payable outstanding in the amount of $500,000, and the corresponding Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 5 shares of preferred stock with a par value of $100 per share. All bonds are converted into preferred stock. What is the amount of the credit to paid in capital in excess of par for preferred stock recorded by Vale in the transaction?

Answer 1

$257,500

Step-by-step explanation:

For computing the amount of the credit to paid in capital in excess of par for preferred stock , we have to pass the journal entry which is shown below:

Bonds payable A/c Dr $500,000

Premium on bonds payable A/c Dr $7,500

To Preferred stock A/c $250,000

To Paid in capital in excess of par - preferred stock A/c $257,500

(Being the conversion of bonds is recorded)

The computation is shown below:

For Common stock:

= $500,000 ÷ $1,000 × 5 shares × $100

= $250,000

And, the remaining balance is credited to paid in capital in excess of par