The journal entry to record the conversion of bonds payable into common stock will include a:
A)debit to Bonds Payable and a credit to Common Stock.
B)debit to Bonds Payable and a credit to Cash.
C)debit to Cash and a credit to Common Stock.
D)debit to Cash and a credit to Paid-in Capital in Excess of Par.

Question

Quizplus · Accepted Answer

When bonds payable are converted into common stock, a debit is made to Bonds Payable (to reduce its balance) and a credit is made to Common Stock (to increase its balance). This is because the bonds are essentially being exchanged for equity in the company, so the Bonds Payable account is decreased and the equity account Common Stock is increased to reflect this transaction.

The Journal Entry to Record the Conversion of Bonds Payable