Four years after issue, debentures with a face value of$1,000,000 and book value of $960,000 are tendered forconversion into 80,000 shares of common stock immediatelyafter an interest payment date. At that time, themarket price of the debentures is 104, and the commonstock is selling at $14 per share (par value $10). The companyrecords the conversion as follows.Bonds Payable -1,000,000Discount on Bonds Payable - 40,000Common Stock - 800,000Paid-in Capital in Excess of Par—Common Stock - 160,000Discuss the propriety of this accounting treatment.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Four years after issue, debentures with a face value of
$1,000,000 and book value of $960,000 are tendered for
conversion into 80,000 shares of common stock immediately
after an interest payment date. At that time, the
market price of the debentures is 104, and the common
stock is selling at $14 per share (par value $10). The company
records the conversion as follows.
Bonds Payable -1,000,000
Discount on Bonds Payable - 40,000
Common Stock - 800,000
Paid-in Capital in Excess of Par—Common Stock - 160,000
Discuss the propriety of this accounting treatment.

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