Question

Bluebell Corporation has outstanding convertible bonds with a face value of $9,000. It has just paid interest on these bonds, and the bonds have a book value of $9,500. Each $1,000 bond is convertible into 30 shares of common stock (par value $20 per share). All of the bonds are converted into common stock when the market value of Bluebell's common stock is $25 per share. Under the market value method, what value would be given to additional paid-in capital from bond conversion?

Answer 1

$900

Step-by-step explanation:

As provided, we need to use the market value method.

Face value of bonds to be converted = $9,000

Further for each $1,000,

30 shares shall be issued.

Total number of shares to be issued =
`(9,000)/(1,000)* 30` = 180 shares.

Market value of share = $25 per share

Par value = $20

Additional paid in value for each share = $25 - $20 = $5

Thus, on conversion

Paid in capital =
`180 shares * 20 dollars each = 3,600 dollars`

Additional paid-in capital = 180 shares
`*` $5 each = $900