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Fogel Co. has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2010, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Fogel should record, as a result of this conversion, aa. credit of $136,000 to Paid-in Capital in Excess of Par.b. credit of $120,000 to Paid-in Capital in Excess of Par.c. credit of $56,000 to Premium on Bonds Payable.d. loss of $8,000.

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abiolataiwo2015

Answer:

a. credit of $136,000 to Paid-in Capital in Excess of Par

Explanation:

Based on the information given Fogel should record, as a result of this conversion, a CREDIT of the amount of $136,000 to Paid-in Capital in Excess of Par which is calculated as:

Paid-in Capital in Excess of Par=800,000 + ($175,000 × .32) – (800 × 30 × $30)

Paid-in Capital in Excess of Par= $136,000

Fogel should record the conversion as A. credit of $136,000 to Paid-in Capital in Excess of Par.

Based on the information that was given, the paid in capital in excess of par will be calculated thus:

= $800000 + ($175000 × 0.32) - (800 × 30 × 30)

= $136000

Therefore, from the calculation above, the recording will be a credit of $136,000 to Paid-in Capital in Excess of Par.

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