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
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

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.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Bonds
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education