Starship Inc.has $1,600,000 of bonds outstanding with an unamortized discount of $73,200 immediately following the latest interest payment.At that time,the bonds were converted into 40,000 common shares.The entry to record the conversion would include a:

Question

Quizplus · Accepted Answer

When bonds are converted to common shares, the company needs to record the new equity issuance by debiting the corresponding equity account (in this case, Common Shares) and, since the bonds are no longer outstanding, eliminate the related liability by crediting Bonds Payable. The discount on the bonds payable is already reflected in the carrying value of the Bonds Payable account, so there is no need to make any additional adjustment to it. Therefore, option D is the correct choice.