C is corrent. Under the market value method, a conversion of bonds to common stock is recorded at the market value of either the stock or the bonds, whichever is more reliable. In this case, the market value of Oak’s stock is given. The common stock account is credited for the par value of the stock (50,000 x $5 = $250,000) and APIC is increased by market value minus par [50,000 x ($25 - $5) = $1,000,000]. Bonds payable and any related accounts are removed from the books, and a gain or loss equal to the difference between the market value of the stock and the book value of the bonds is recorded. Oak sustained a loss on this redemption of $50,000, as shown in the entry recording the conversion
A is incorrect because this response represents the increase in APIC under the book value method.
B is incorrect because no amount has been allocated to common stock.
D is incorrect. Under the market value method, a conversion of bonds to common stock is recorded at the market value of either the stock or the bonds, whichever is more reliable. In this case, the market value of Oak’s stock is given. The common stock account is credited for the par value of the stock (50,000 x $5 = $250,000) and APIC is increased by market value minus par [50,000 x ($25 - $5) = $1,000,000]. Bonds payable and any related accounts are removed from the books, and a gain or loss equal to the difference between the market value of the stock and the book value of the bonds is recorded. Oak sustained a loss on this redemption of $50,000, as shown in the entry recording the conversion
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