Reference no: EM132677741
On July 1, 2008,bondholders converted bonds of Vebbz Corporation with a face value of $90,000 into 1,800 of its no par value common shares. On that date, these shares were being traded at $51 and there was a balance of $3,600 of discount on the bonds remaining unamortized. All interest has been recorded and paid up to that date. When the bonds had been issued, the equity portion of the issue was recorded at $850.
The balance of this unamortized discount amounted to 40% of the discount recorded on the date the bonds had been issued. Interest is paid on June 30 and December 31 and the bond discount is being amortized at $675 per interest period.
Problem 1: The journal entry that Vebbz would be required to make to record this conversion transaction would include
a. Common Stock ... CR $87,250
b. Common Stock ... CR $81,000; Gain on Conversion of Bonds ... CR $4,550
c. Common Stock ... CR $81,000; Contributed Surplus - Conversion ... CR $4,550
d. Common Stock ... CR $81,000; Gain on Conversion of Bonds ... CR $9,850
e. None of the above.
Problem 2: Determine the date on which the bonds were issued.
a. January 1, 2008
b. July 1, 2004
c. January 1, 2000
d. January 1, 2004
e. Cannot be determined from the given data.
Problem 3: The journal entry that Vebbz was required to be made when these convertible bonds were issued.
a. Cash ... DR $90,850; Bonds Payable ... CR $90,000; Contributed Surplus - Conversion ... CR $850
b. Cash ... DR $87,250; Bonds Payable ... CR $86,400; Contributed Surplus - Conversion ... CR $850
c. Cash ... DR $81,850; Bonds Payable ... CR $81,000; Contributed Surplus - Conversion ... CR $850
d. Cash ... DR $90,850; Bonds Payable ... CR $90,850
e. Cash ... DR $81,850; Bonds Payable ... CR $81,850
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