Question

If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

Account Titles and Explanation Debit Credit

Bonds Payable (60 x $1000) 60,000
Premium on Bonds Payable (70,000 - 60,000) 10,000
Common Stock (9000 shares x 5) 45,000
Paid-in Capital in Excess of Par (70000 - 45000) 25,000

Please explain where does that bonds payable (60x 1000) comes from?

Answer 1

Step-by-step explanation:

The journal entry is shown below:

Bonds payable A/c Dr $60,000

Premium on bonds payable A/c Dr $10,000

To Common stock A/c $45,000

To Paid in capital in excess of par A/c $25,000

(Being the conversion of bonds is recorded)

The computation is shown below:

For bonds payable

= sixty $1,000 convertible bonds

That means

= 60 × $1,000

= $60,000

For Premium on bonds payable:

= $70,000 - $60,000

= $10,000

For Common stock:

= 9,000 shares × $5

= $45,000

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