Choice "C" is correct. No gain or loss is recognized at conversion. At conversion, the bond payable and discount are written off and common stock is credited at par. Additional paid in capital is credited for the excess of the bond's carrying value over the stock's par value.
| Debit (Dr) | Credit (Cr) |
|---|
| Bond Payable | $ 775,000 | |
| Unamortized discount | | $ 23,000 |
| Common stock − par value | | 450,000 |
| Additional paid in capital | | 302,000 |
Choice "d" is incorrect. The unamortized discount needs to be subtracted from the amount of bonds payable.Choice "a" is incorrect. The unamortized discount needs to be subtracted, not added, to the amount of bonds payable.Choice "b" is incorrect. The stock amount needs to be split between common stock and additional paid in capital and the unamortized discount should be subtracted, not added.
