On June 30, 2013, Blair Industries had outstanding $80 million of 8% convertible bonds that mature on June 30, 2014. Interest is payable each year on June 30 and December 31. The bonds are convertible into 6 million shares of $10 par common stock. At June 30, 2013, the unamortized balance in the discount on bonds payable account was $4 million. On June 30, 2013, half the bonds were converted when Blair's common stock had a market price of $30 per share. When recording the conversion, Blair should credit paid-in capital-excess of par:

Question

Quizplus · Accepted Answer

When the bonds are converted, the company needs to record the following:

1. Remove the liability of the bonds: This is done by debiting the Bonds Payable account for the face value of the bonds that were converted (i.e. $40 million).

2. Remove the unamortized discount: This is done by debiting the Discount on Bonds Payable account for the balance that has not yet been amortized (i.e. $2 million).

3. Record the common stock issued: This is done by crediting the Common Stock account for the par value of the shares issued (i.e. $30 million).

4. Record any excess over par: This is done by crediting the Paid-in Capital in Excess of Par account for the difference between the market price and the par value of the shares issued (i.e. $8 million).

Therefore, the correct answer is B) $8 million.

On June 30, 2013, Blair Industries Had Outstanding $80 Million