Crane Company has $3800000 of 7% convertible bonds outstanding. Each $1,000 bond

Question

Crane Company has $3800000 of 7% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1200000 bonds exercised the conversion privilege. On that date the market price of the bonds was 104 and the market price of the common stock was $35. The total unamortized bond premium at the date of conversion was $270000. Crane should record, as a result of this conversion, a

Explanation / Answer

The Answer is - Credit of $ 2,06,400 to Paid-in Capital in Excess of Par.

Calculation

$ 12,00,000 + ($ 2,70,000 × 0.32**) – ( 1200 x 30 x 30) = $ 2,06,400

*** $ 12,00,000 / $ 38,00,000 = 0.32

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