XYZ Corporation has $30,000 of bonds outstanding with a carrying value of $38,400. The bonds are converted into 15,000 shares of $1 par value common stock. The common stock had a market value of $5 per share on the date of conversion. The entry to record the conversion would include a debit to bonds payable of:
A) $38,400.
B) $15,000.
C) $30,000.
D) $23,400.

Question

Quizplus · Accepted Answer

The bonds payable account should be credited with the carrying value of the bonds, which is $38,400. To balance the entry, the common stock account should be credited with the market value of the shares issued, which is $75,000 (($1 par value x 15,000 shares) x $5 market value per share). Therefore, the bonds payable account should be debited for the same amount, which is $30,000 ($38,400 - $8,400 discount amortized to date).

XYZ Corporation Has $30,000 of Bonds Outstanding with a Carrying