Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertibl
ID: 2415602 • Letter: L
Question
Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?
$65,000
$72,000
$60,000
$62,000
Please provide detail calculation & explanation why the answer is $62,000
$65,000
Explanation / Answer
Bond issue price = 100000+5000=105000
current book value of bonds as $3000 premium is amortized = 105000-3000=102000
Conversion price = 102000 for 2000 shares
par value for 2000 shares = 2000*40=40000
paid in for 2000 = conversion price - par value
= 102000-40000
= 62000
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