Question

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the iGAAP journal entry will include a debit of

a. $800,000 to Paid-in Capital — Convertible Bonds and a credit to Premium on Bonds Payable.
b. $800,000 to Premium on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.
c. $800,000 to Discount on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.
d. $4,200,000 to Cash along with a debit of $800,000 to Discount on Bonds Payable and a credit to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

Answer 1

The correct iGAAP journal entry when $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond is to debit $800,000 to Premium on Bonds Payable and credit Paid-in Capital — Convertible Bonds.

Step-by-step explanation:

The correct iGAAP journal entry when $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond would be:

b. $800,000 to Premium on Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

In this journal entry, the $800,000 is debited to Premium on Bonds Payable, which represents the value of the equity option in the bond. This amount is recorded as a liability. On the other hand, Paid-in Capital — Convertible Bonds is credited, which represents the amount paid by the bondholders for the convertible bonds.