Lloyd Corporation has $2,100,000 of bonds outstanding with an unamortized premium of $105,000 immediately following the last interest payment. At that time, the bonds were converted into 270,000 shares of $8 par value common stock. As a result of this conversion:
A)liabilities decreased by $1,995,000 and stockholders' equity increased by $1,995,000.
B)liabilities decreased by $2,100,000 and stockholders' equity increased by $2,100,000.
C)liabilities decreased by $2,205,000 and stockholders' equity increased by $2,205,000.
D)liabilities increased by $1,995,000 and stockholders' equity increased by $1,995,000.

Question

Quizplus · Accepted Answer

The bonds' carrying amount is $2,100,000 + $105,000 = $2,205,000. Upon conversion, liabilities decrease by this amount, and stockholders' equity increases by the same amount.

Lloyd Corporation Has $2,100,000 of Bonds Outstanding with an Unamortized