Arco, Inc. issued $300,000 of 4%, 10-year convertible bonds at par on July 1, 2022. Each bond has a par value of $1000. The bonds include the option for bondholders to convert each bond into 50 $1 par value shares of common stock beginning two years after the date of issue. The market price of the stock at the time of issue is $25 per share and the beneficial conversion option is valued at $75,000. On July 2, 2024, when the market price of the stock is $35 and the balance in the Discount account is $66,000, all of the bondholders convert the bonds. What is the proper entry to record the conversion of the bonds? Group of answer choices Date Account Debit Credit July 2, 2024 Bonds Payable 300,000 Discount on Bonds Payable 75,000 Common Stock, $1 par, 15,000 shares 300,000 Add. Paid-in Capital—Bene. Conv. Option 75,000 Date Account Debit Credit July 2, 2024 Bonds Payable 300,000 Add. Paid-in Capital—Bene. Conv. Option 75,000 Discount on Bonds Payable 66,000 Common Stock, $1 par, 15,000 shares 15,000 Add. Paid-in Capital in Excess of Par- Common 294,000 Date Account Debit Credit July 2, 2024 Bonds Payable 300,000 Discount on Bonds Payable 66,000 Common Stock, $1 par, 15,000 shares 15,000 Add. Paid-in Capital in Excess of Par- Common 351,000 Date Account Debit Credit July 2, 2024 Bonds Payable 300,000 Beneficial Conversion Option 60,000 Discount on Bonds Payable 66,000 Add. Paid-in Capital in Excess of Par- Common 294,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

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Arco, Inc. issued $300,000 of 4%, 10-year convertible bonds at par on July 1, 2022. Each bond has a par value of $1000. The bonds include the option for bondholders to convert each bond into 50 $1 par value shares of common stock beginning two years after the date of issue. The market price of the stock at the time of issue is $25 per share and the beneficial conversion option is valued at $75,000. On July 2, 2024, when the market price of the stock is $35 and the balance in the Discount account is $66,000, all of the bondholders convert the bonds. What is the proper entry to record the conversion of the bonds?

Group of answer choices

Date	Account	Debit	Credit
July 2, 2024	Bonds Payable	300,000
	Discount on Bonds Payable	75,000
	Common Stock, $1 par, 15,000 shares		300,000
	Add. Paid-in Capital—Bene. Conv. Option		75,000

Date	Account	Debit	Credit
July 2, 2024	Bonds Payable	300,000
	Add. Paid-in Capital—Bene. Conv. Option	75,000
	Discount on Bonds Payable		66,000
	Common Stock, $1 par, 15,000 shares		15,000
	Add. Paid-in Capital in Excess of Par- Common		294,000

Date	Account	Debit	Credit
July 2, 2024	Bonds Payable	300,000
	Discount on Bonds Payable	66,000
	Common Stock, $1 par, 15,000 shares		15,000
	Add. Paid-in Capital in Excess of Par- Common		351,000

Date	Account	Debit	Credit
July 2, 2024	Bonds Payable	300,000
	Beneficial Conversion Option	60,000
	Discount on Bonds Payable		66,000
	Add. Paid-in Capital in Excess of Par- Common		294,000