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Question - Kelley Co. has $5,000,000 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, 2022, the holders of $1,600,000 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 $26. The total unamortized bond premium at the date of conversion was $350,000.
Required -
(1) Record the appropriate journal entry or entries for the conversion of the bonds.
(2) How would stockholder's equity change from the conversion of the bonds?
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