Laker, Inc. had outstanding 10 percent, $1,000,000 face value, convertible bonds maturing on December 31, 2014. Interest is paid December 31 and June 30. After amortization through June 30, 2011, the unamortized balance in the bond premium account was $30,000. On that date, bonds with a face amount of $500,000 were converted into 20,000 shares of $20 par common stock. Recording the conversion by using the carrying value of the bonds, Laker should credit Additional Paid-In Capital for

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The carrying value of the bonds is the sum of the unamortized premium and the face amount of the bonds, which is $1,030,000 ($30,000 + $1,000,000). When $500,000 of the bonds are converted, the carrying value allocated to those bonds is $515,000 ($500,000/$1,000,000 x $1,030,000), which becomes the basis for the common stock issued. The difference between the par value of the common stock issued ($20 x 20,000 = $400,000) and the carrying value of the bonds allocated to the common stock ($515,000) is credited to Additional Paid-In Capital, which is $115,000 ($515,000 - $400,000). Therefore, the correct answer is (D) $115,000.