Immediately After the Last Interest Payment, Hoffman & Stuart Company

question 67

Multiple Choice

Immediately after the last interest payment, Hoffman & Stuart Company converted $2,500,000 of its bonds into 250,000 shares of $10 par value common stock. The unamortized premium on the bonds at the date of conversion was $940,000. The entry to record the conversion would include:

• A)liabilities decreased by $3,440,000 and stockholders' equity increased by $3,440,000.
• B)liabilities decreased by $3,440,000 and stockholders' equity increased by $3,600,000.
• C)liabilities decreased by $3,600,000 and stockholders' equity increased by $3,400,000.
• D)liabilities decreased by $3,600,000 and stockholders' equity increased by $3,440,000.

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Definitions:

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the Federal Reserve's discount window.

Federal Reserve

The Federal Reserve is the central banking system of the United States, responsible for monetary policy, regulating banks, maintaining financial stability, and providing financial services.

Double Coincidence of Wants

A situation in barter economies where two parties each hold an item the other wants, making it possible for them to exchange these items directly.

100-percent-reserve Banking

A banking system in which banks are required to keep 100% of their deposits available as reserves, thus eliminating the possibility of bank runs.