Debt Ratio
Response to the following problem:
New Blue Corp. has $1,000,000 of convertible bonds payable outstanding, with a bond premium of $20,000 also on the books. The bondholders have notified New Blue that they wish to convert the bonds into stock. Specifically, the bonds may be converted into 200,000 shares of New Blue's $1 par common stock.
1. What is New Blue's carrying amount of its convertible bonds payable prior to the conversion?
2. Journalize New Blue's conversion of the bonds payable into common stock. No explanation is required.
3. How will the conversion affect New Blue's debt ratio?