Question

Question: Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value ordinary shares. The bonds are converted on December 31, 2017. The bonds payable has a carrying value of \(1,950,000 and conversion equity of \)20,000. Record the conversion using the book value method.

Short answer

Answer

Cash will be debited by $20,000 and bonds payable by $1950,000, and share capital will be credited by $1,000,000 and share premium will be credited by $970,000.

Step-by-step solution

Introduction to bond payable

It is a liability account that records the long-term debt which occurs when a company issues bonds to generate cash and thus bonds payable are recorded.

Journals

Date	Accounts and Explanations	Debit	Credit
	Cash	$20,000
	Bond Payable	$1,950,000
	Share capital (2,000 x 50 x$10)		$1,000,000
	Share premium (Bal. fig.)		$970,000
	Being the conversion is recorded