Question

Exercise 16-03 Cullumber Company has bonds payable outstanding in the amount of $480,000, and the Premium on Bonds Payable account has a balance of $9,300. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted into preferred stock. Assuming that the book value method was used, what entry would be made? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

Account titles and explanation	Debit	Credit
Bonds payable	$480,000
Premium on bonds payable	$9,300
preferred stock		$480,000
paid-in capital in excess of par (preferred stock)		$9,300
(bonds are converted into preferred stock)

working:

Number of preferred shares that bonds will be converted to is (480,000/1000) * 20 = 9.600 shares

Value of 9,600 shares = 9,600 * $50 = $480,000

Premium on bonds payable will become, paid in capital in excess of par (preferred stock)