B is corrent. Under the book value method, the common stock is recorded at the carrying amount of the converted bonds less any conversion costs. No gain or loss is ever recognized. The journal entry is | Bonds payable | 1,000,000 | | | | Discount on BP | | 30,000 | | | Common stock (40,000 x $20) | | 800,000 | | | APIC (plug) | | 170,000 |
A is incorrect. Under the book value method, the common stock is recorded at the carrying amount of the converted bonds less any conversion costs. No gain or loss is ever recognized. The journal entry is | Bonds payable | 1,000,000 | | | | Discount on BP | | 30,000 | | | Common stock (40,000 x $20) | | 800,000 | | | APIC (plug) | | 170,000 |
c is incorrect. Under the book value method, the common stock is recorded at the carrying amount of the converted bonds less any conversion costs. No gain or loss is ever recognized. The journal entry is | Bonds payable | 1,000,000 | | | | Discount on BP | | 30,000 | | | Common stock (40,000 x $20) | | 800,000 | | | APIC (plug) | | 170,000 |
D is incorrect. Under the book value method, the common stock is recorded at the carrying amount of the converted bonds less any conversion costs. No gain or loss is ever recognized. The journal entry is | Bonds payable | 1,000,000 | | | | Discount on BP | | 30,000 | | | Common stock (40,000 x $20) | | 800,000 | | | APIC (plug) | | 170,000 |
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