Immediately after the last interest payment,Henry Company converted $3,000,000 of its bonds into 300,000 shares of $10 par value common stock.The unamortized premium on the bonds at the date of the conversion was $870,000.As a result of this conversion:
A)liabilities decreased by $3,870,000 and stockholders' equity increased by $3,000,000.
B)liabilities decreased by $3,000,000 and stockholders' equity increased by $3,000,000.
C)liabilities decreased by $3,870,000 and stockholders' equity increased by $3,870,000.
D)liabilities decreased by $870,000 and stockholders' equity increased by $870,000.

Question

Quizplus · Accepted Answer

The conversion of bonds into stock decreases liabilities by the carrying amount of the bonds, which includes the face value and the unamortized premium ($3,000,000 + $870,000 = $3,870,000). Stockholders' equity increases by the same amount, $3,870,000, reflecting the issuance of common stock.

Immediately After the Last Interest Payment,Henry Company Converted $3,000,000 of Its