B is corrent because stockholders’ equity will increase by $900,000 ($100,000 par value + $800,000 additional paid-in capital). If the bond is converted at book value, no gain or loss will be recorded on the conversion. The bond payable and the discount on bonds payable account are removed from the books, common stock is increased by par value of the shares issued, and the remaining amount is credited to additional paid-in capital. The journal entry required for Stunt’s conversion of the bonds is
Bonds Payable 1,000,000
Discount on bonds payable 100,000
Common stock 100,000 (par)
Additional paid-in capital 800,000 (plug)
A is incorrect. Stockholders’ equity will increase by $900,000 ($100,000 par value + $800,000 additional paid-in capital). If the bond is converted at book value, no gain or loss will be recorded on the conversion. The bond payable and the discount on bonds payable account are removed from the books, common stock is increased by par value of the shares issued, and the remaining amount is credited to additional paid-in capital. The journal entry required for Stunt’s conversion of the bonds is
Bonds Payable 1,000,000
Discount on bonds payable 100,000
Common stock 100,000 (par)
Additional paid-in capital 800,000 (plug)
C is incorrect. Stockholders’ equity will increase by $900,000 ($100,000 par value + $800,000 additional paid-in capital). If the bond is converted at book value, no gain or loss will be recorded on the conversion. The bond payable and the discount on bonds payable account are removed from the books, common stock is increased by par value of the shares issued, and the remaining amount is credited to additional paid-in capital. The journal entry required for Stunt’s conversion of the bonds is
Bonds Payable 1,000,000
Discount on bonds payable 100,000
Common stock 100,000 (par)
Additional paid-in capital 800,000 (plug)
D is incorrect. Stockholders’ equity will increase by $900,000 ($100,000 par value + $800,000 additional paid-in capital). If the bond is converted at book value, no gain or loss will be recorded on the conversion. The bond payable and the discount on bonds payable account are removed from the books, common stock is increased by par value of the shares issued, and the remaining amount is credited to additional paid-in capital. The journal entry required for Stunt’s conversion of the bonds is
Bonds Payable 1,000,000
Discount on bonds payable 100,000
Common stock 100,000 (par)
Additional paid-in capital 800,000 (plug)
