Question

Nattel Corp. issues 10,000, $1,000 face amount bonds at 104. Each bond can be converted into 25 shares of no-par common stock. Margarita, Inc., purchased 2,500 of the bonds and converts them after 2 years. At that time, the balance in the premium on bond investment is $75,000. Margarita should recognize this conversion by debiting investment in common stock for

Answer 1

Answer: $2,575,000

Step-by-step explanation:

The value of the bonds purchased is:

= 2,500 * 1,000

= $2,500,000

There is a premium on the bon investment so the net value of the bonds is:

= 2,500,000 + 75,000

= $2,575,000

This is the amount that will be converted to common stock and so should be debited to the investment in common stock.