Chapter 14, Problem 11QS

To determine

Retirement of Bonds through conversion:

Sometimes, the investors are given option to convert their bonds pending for retirement in to shares preferred or common or new bonds. In such the issue price of new securities issued shall be computed by dividing the carrying amount of bonds payable by the number of new securities. On finding the issue price of new securities, it can be determined the amount of securities premium has been received at the time of issuance of new securities for conversion.

Accounting treatment of retirement of bonds payable through conversion is debiting the nominal value of bonds payable and crediting the nominal value of new securities issued. When the carrying value of bonds payable is lower or higher than nominal value, the difference is unamortized discount or unamortized premium to be credited or debited along in the same entry. And if the new securities has been issued at premium, the amount of securities premium shall also be credited along with in the same entry.

The Journal entry for retirement of bonds through conversion.