Reference no: EM132492213
Question 1: Wang Inc. has $3,000,000 (par value), 8% convertible bonds outstanding. Each $1,000 bond is convertible into thirty no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2020, the holders of $900,000 worth of bonds exercised the conversion privilege. On that date the market price of the bonds was 105, the market price of the common shares was $36, the carrying value of the common shares was $18 and the Contributed Surplus-Conversion Rights account balance was $450,000. The total unamortized bond premium at the date of conversion was $210,000. Using the book value method, Wang should record, as a result of this conversion,
A. a credit of $63,000 to Bonds Payable.
B. a credit of $135,000 to Contributed Surplus-Conversion Rights
C. a debit of $210,000 to Bonds Payable.
D. a debit of $135,000 to Contributed Surplus-Conversion Rights.
Question 2: Johannesburg Corp. has two issues of securities outstanding: no par value common shares and 8% convertible bonds with a par value of $8,000,000. Bond interest payment dates are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 common shares in exchange for each $1,000 bond. The value of the equity portion of the bond issue is $60,000. On June 30, 2020, the holders of $1,200,000 par value bonds exercise the conversion privilege. The market price of the bonds on that date is $1,100 per bond and the market price of the common shares is $35. The total unamortized bond discount at the date of conversion is $500,000. In applying the book value method, what amount should Johannesburg credit to Common Shares as a result of this conversion?
A. $1,125,000
B. $1,134,000
C. $1,116,000
D. $1,284,000
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