Unamortized discount on the bonds

Question 1: Jenks Co.has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2007, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Jenks should record, as a result of this conversion, a

a. credit of $136,000 to Paid-in Capital in Excess of Par.

b. credit of $120,000 to Paid-in Capital in Excess of Par.

c. credit of $56,000 to Premium on Bonds Payable.

d. loss of $8,000.

Question 2: On July 1, 2007, an interest payment date, $60,000 of Risen Co. bonds were converted into 1,200 shares of Risen Co. common stock each having a par value of $45 and a market value of $54. There is $2,400 unamortized discount on the bonds. Using the book value method, Risen would record

a. no change in paid-in capital in excess of par.

b. a $3,600 increase in paid-in capital in excess of par.

c. a $7,200 increase in paid-in capital in excess of par.

d. a $4,800 increase in paid-in capital in excess of par.

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Finance Basics: Unamortized discount on the bonds
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