E FGHI JKLMNOPQRS TUV W AA Chapter 11, E11B 1. 2. ( $400,000 + $20,000 ) x 20 shares = The number of shares issued for the bonds is calculated as follows: 40 shares 3. Effects of bond conversion: Total liabilities are reduced by $ ,as follows: Bonds payable Unamortized bond discount* Decrease in total liabilities х ( Total stockholders' equity will be increased by $ as follows: Common stock shares Additional paid-in capital Increase in stockholders' equity
Bond Conversion
E11B. Mendoza Corporation has $400,000 of 6 percent bonds outstanding. There is
$20,000 of unamortized discount remaining on these bonds after the July 1, 2014,
semiannual interest payment. The bonds are convertible at the rate of 20 shares of $5
par value common stock for each $1,000 bond. On July 1, 2014, bondholders presented $300,000 of the bonds for conversion.
1. Is there a gain or loss on conversion, and if so, how much is it?
2. How many shares of common stock are issued in exchange for the bonds?
3. In dollar amounts, how does this transaction affect the total liabilities and the total
accounts.
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