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On June 30, 2017, an interest payment date, $1,000,000 of Greenville Co. bonds were converted into 25,000 shares of Greenville Co. common stock each having a par value of $5 and a market value of $54. There is $350,000 unamortized discount on the bonds. Using the book value method, Greenville would record:

a. a $350,000 increase in paid-in capital in excess of par.
b. a $525,000 increase in paid-in capital in excess of par.
c. a $135,000 increase in paid-in capital in excess of par.
d. no change in paid-in capital in excess of par.

Respuesta :

abiolataiwo2015

Answer:

b. a $525,000 increase in paid-in capital in excess of par.

Explanation:

Greenville Co.

The increase to paid-in capital in excess of par is:

$1,000,000 - (25,000 x $5) - $350,000

$1,000,000-$125,000-$350,000

= $525,000

Therefore using the book value method, Greenville would record: a $525,000 increase in paid-in capital in excess of par.

hyderali230

Answer:

b. a $525,000 increase in paid-in capital in excess of par.

Explanation:

The value of shares up to the par is recorded in common stock account and the value excess of par is recorded in Paid-in-capital excess of par account. In the book value the converted value is considered as the carrying value of the bonds on conversion date.

Book Value of Book = Face value of bonds - un-amortized discount = $1,000,000 - $350,000 = $650,000

Numbers of shares converted = 25,000 shares

Common stock value = 25,000 x $5 = $125,000

Paid-in capital in excess of par = 650,000 - $125,000 = $525,000

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