Marley, Inc. sold $500,000 of its ten-year 8% bonds at 96 on January 1, 2014. Interest is paid each January 1 and July 1 and straight-line amortization is used. Each $1,000 bond is convertible into 100 shares of $10 par common stock. One-half of the bonds were converted on January 1, 2019, when the market value of the stock was $14 per share.
1.
The entry to record the conversion using the book value method would include a
a.
debit to Loss on Conversion for $5,000.
b.
debit to Retained Earnings for $5,000.
c.
debit to Discount on Bonds Payable for $5,000.
d.
credit to Additional Paid-in Capital from Bond Conversion for $5,000.
2.
The entry to record the conversion using the market value method would include a
a.
debit to Additional Paid-in Capital from Bond Conversion for $105,000.
b.
debit to Retained Earnings for $105,000.
c.
debit to Loss from Conversion for $105,000.
d.
credit to Gain from Conversion for $105,000.
Answers: 2
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Marley, Inc. sold $500,000 of its ten-year 8% bonds at 96 on January 1, 2014. Interest is paid each...
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