On January 1,2016,Ozark Minerals issued $10 million of 9%,10-year convertible bonds at 101.The bonds pay interest on June 30 and December 31.Each $1,000 bond is convertible into 40 shares of Ozark's no par common stock.Bonds that are similar in all respects,except that they are nonconvertible,currently are selling at 99.Upon issuance,Ozark should:

Question

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The bonds were issued at 101, which means they were issued at a premium (1% above face value). The premium is $100,000 ($10,000,000 x 1%). Therefore, Ozark should credit premium on bonds payable $100,000.

On January 1,2016,Ozark Minerals Issued $10 Million of 9%,10-Year Convertible