Fogel Co.has $2,500,000 of 8% convertible bonds outstanding.Each $1,000 bond is convertible into 30 shares of $30 par value ordinary shares.The bonds pay interest on January 31 and July 31.On July 31, 2012, the holders of $800,000 bonds exercised the conversion privilege.On that date the market price of the bonds was 105 and the market price of the ordinary shares was $36.The total unamortized bond premium at the date of conversion was $175,000.Fogel should record, as a result of this conversion, a

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The conversion of bonds to shares involves removing the bond liability and recognizing the equity. The bonds converted are $800,000, which means 800 bonds are converted. Each bond converts into 30 shares, so 24,000 shares are issued. The par value of these shares is $720,000 (24,000 shares x $30 par value). The book value of the bonds converted is $800,000 plus the proportionate premium of $56,000 ($175,000 x $800,000/$2,500,000), totaling $856,000. The difference between the book value of the bonds and the par value of the shares is $136,000 ($856,000 - $720,000), which is credited to Share Premium-Ordinary.

Fogel CoHas $2,500,000 of 8% Convertible Bonds Outstanding