Question

On January 1, 2017, the $2,000,000 par value bonds of Spitz Company with a carrying value of $2,000,000 are converted to 1,000,000 shares of $1.00 par value common stock. Record the entry for the conversion of the bonds.

Answer 1

Answer: Please see answer in the explanation column

Step-by-step explanation:

Journal entry for the conversion of the bonds to common stock on January 1st ,2017.

Account Debit Credit

Bonds payable $2,000,000

Common stock $1,000,000

Paid in Capital in excess of par value $1,000,000

When Bonds are converted to stock, the liability is no longer available, therefore bonds payable will be debited.

AT par $1 value, the share capital is $1,000,000 and the excess amount , Paid in capital in excess of par value becomes

Bonds payable - Common stock = $2,000,000- $1,000,000 = $1,000,000