Freddy,Inc.had outstanding 10 percent,$1,000,000 face value,convertible bonds maturing on December 31,2017.Interest is paid December 31 and June 30.After amortization through June 30,2014,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,Freddy should credit Additional Paid-In Capital for

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The carrying value of the bonds is the face value plus the unamortized premium. For $500,000 of bonds, the carrying value is $515,000 ($500,000 face value + $15,000 unamortized premium, which is half of $30,000 because only $500,000 of the $1,000,000 bonds are being converted). The common stock issued is valued at $400,000 (20,000 shares * $20 par value). The difference between the carrying value of the bonds and the common stock issued, $115,000 ($515,000 - $400,000), is credited to Additional Paid-In Capital.