Bond Conversion



The tramot corporation has $2,000,000 of 6 percent bonds outstanding. There is $40,000 of unamoritized discount remaining on the bonds after the March 1, 2008 semiannual interest payment. The bonds are convertible at the rate of 20 shares of $10 par value common stock for each $1,000 bond. On March 1, 2008, bondholders presented $1,2000,000 of the bonds for conversion. Prepare the entry to record the conversion of the bonds.

Any help you could provide would be soooo greatly appreciated!

Bond Conversion The tramot corporation has $2,000,000 of 6 percent bonds outstanding. There is $40,000 of unamoritized discount remaining on the bonds after the March 1, 2008 semiannual interest payment. The bonds are convertible at the rate of 20 shares of $10 par value common stock for each $1,000 bond. On March 1, 2008, bondholders presented $1,2000,000 of the bonds for conversion. Prepare the entry to record the conversion of the bonds. Any help you could provide would be soooo greatly appreciated!

To prepare the entry to record the conversion of the bonds, we need to follow a few steps:

Step 1: Calculate the number of shares to be issued

First, we need to determine the number of bonds being converted. In this case, $1,200,000 of bonds are being converted. To convert $1,000 bond, we need 20 shares of $10 par value common stock.

Therefore, the number of shares to be issued would be:
$1,200,000 / $1,000 * 20 = 2,400,000 shares

Step 2: Calculate the value of unamortized discount

Next, we need to calculate the value of the unamortized discount that will be allocated to the common stock upon conversion.

The unamortized discount remaining after the interest payment is $40,000.

So, the value of the unamortized discount allocated to the common stock would be:
$40,000 / ($2,000,000 / $1,000) = $20 per bond

Step 3: Calculate the value of the bonds converted

To calculate the value of the bonds being converted, we need to subtract the value of the unamortized discount allocated to the common stock from the face value of the bonds.

The face value of the bonds being converted is $1,200,000, and the value of the unamortized discount allocated to the common stock is $20 per bond.

So, the value of the bonds being converted would be:
$1,200,000 - ($20 * 1,200) = $1,176,000

Step 4: Record the bond conversion entry

The entry to record the bond conversion would be as follows:

Debit Bonds Payable - $1,176,000
Credit Unamortized Discount on Bonds Payable - $40,000
Credit Common Stock - Par Value - $2,400,000

This entry reflects the reduction in the Bonds Payable and the Unamortized Discount, as well as the increase in Common Stock by the value of the converted bonds and the corresponding allocation of the unamortized discount to the common stock.