Wang Inc Has $ 3,000,000 (Par Value), 8% Convertible Bonds Outstanding

question 89

Multiple Choice

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 $ 135,000 to Contributed Surplus-Conversion Rights.
• B) a debit of $ 135,000 to Contributed Surplus-Conversion Rights.
• C) a credit of $ 63,000 to Bonds Payable.
• D) a debit of $ 210,000 to Bonds Payable.

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Definitions:

Units Transferred Out

The complete quantity of units that have moved through a production process and are sent out from a specific department or the entire production system.

Processing Department

A section within a manufacturing facility where specific types of operations or treatments are carried out on products.

First-In, First-Out Method

An inventory valuation method where the first items purchased or produced are the first ones sold, affecting the cost of goods sold and ending inventory value.

Equivalent Units

A concept used in process costing that converts partially completed units into a smaller number of fully equivalent completed units.