Question

Waterway Industries issued at a premium of $10100 a $192000 bond issue convertible into 3600 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4300, the market value of the bonds is $212000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?

Answer 1

$124,300

Step-by-step explanation:

The computation of paid in capital in excess of par is shown below:-

For computing the paid in capital in excess of par we need to find out first bond issue price, premium amortized, current book value of bonds and convertible shares which is below:-

Bond issue price = Bond price + Premium

= $192,000 + $10,100

= $202,100

Premium amortized = Premium - Unamortized

= $10,100 - $4,300

= $5,800

Current book value of bonds = Bond issue price - Premium amortized

= $202,100 - $5,800

= $196,300

Convertible into 3,600 (par value $20)

= 3,600 × $20

= $72,000

Now,

Paid in capital in excess of par = Current book value of bonds - Convertible

= $196,300 - $72,000

= $124,300