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Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 ordinary shares (par value $40)
Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 ordinary shares (par value $40). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the shares are quoted on the market at $60 per share. If the bonds are converted into ordinary shares, what is the amount of share premium to be recorded on the conversion of the bonds? a. $25,000 b. $22,000 c. $32,000 d. $40,000
Expert Solution
Answer
b .
Explanation
| Journal Entry: | |||
| General Journal | Debit | Credit | |
| Bonds Payable | $100,000 | ||
| Premium on Bonds Payable | $2,000 | ||
| Common Stock | 80000 | =2000*$40 | |
| Paid-in Capital in Excess of Par | $22,000 | =$100,000+$2,000-$80000 | |
| Paid-in capital in excess of par to be recorded at $22,000. |
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