Bluebird has $5,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is

Question

Bluebird 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, 2012, the holders of $1,500,000 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 $36. The total unamortized bond premium at the date of conversion was $350,000. Klug should record, as a result of this conversion, a
a. debit of $255,000 to Paid-in-Capital in Excess of Par.
b. credit of $105,000 to Premium on Bonds Payable.
c. credit of $225,000 to Paid-in-Capital in Excess of Par.
d. credit of $255,000 to Paid-in-Capital in Excess of Par.

Explanation / Answer

b. credit of $105,000 to Premium on Bonds Payable.

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