On January 1, 2013, 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:
A)Debit discount on bonds payable $100,000.
B)Credit premium on bonds payable $100,000.
C)Credit equity $100,000.
D)Credit bonds payable $10,100,000.

Question

Quizplus · Accepted Answer

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

On January 1, 2013, Ozark Minerals Issued $10 Million of 9