Morgan Corporation had two issues of securities outstanding: ordinary shares and an 8% convertible bond issue in the face amount of $16,000,000.Interest payment dates of the bond issue are June 30th and December 31st.The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value ordinary shares in exchange for each $1,000 bond.On June 30, 2010, the holders of $2,400,000 face value bonds exercised the conversion privilege.The market price of the bonds on that date was $1,100 per bond and the market price of the shares was $35.The total unamortized bond discount at the date of conversion was $1,000,000.What amount should Morgan credit to the account "share premium-ordinary," as a result of this conversion?

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The correct answer is A.The amount credited to share premium-ordinary is the difference between the market value of the shares issued and the par value of the bonds converted. In this case, the market value of the shares issued is $2,400,000 x 40 x $35 = $336,000,000. The par value of the bonds converted is $2,400,000. Therefore, the amount credited to share premium-ordinary is $336,000,000 - $2,400,000 = $333,600,000.

Morgan Corporation Had Two Issues of Securities Outstanding: Ordinary Shares