On July 1, 2018, after recording interest and amortization, Acteon Co. converted $1,000,000 of its 5%...
On July 1, 2018, after recording interest and amortization, Acteon Co. converted $1,000,000 of its 5% convertible bonds into 50,000 shares of $1 par value common stock. On the conversion date the market value of the bonds was $1,250,000, Acteon’s common stock was publicly trading at $21 per share, and the unamortized bond premium and bond issue costs were $30,000 and $50,000, respectively. Using the book value method, what amount of additional paid-in capital should Acteon record as a result of the conversion?
Homework Answers
Answer : Amount of additional paid-in capital
= Nominal value of convertible bonds + Unamortized bond premium - Bond issue costs - Nominal value of common stock
= $1,000,000 + $30,000 - $50,000 - $50,000
= $930,000
Note : When book value method is used , the information about market value of the bonds is irrelevant.
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