Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 ordinary shares
Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 ordinary shares immediately after an interest payment date. At that time, the market price of the debentures is 104, and the ordinary shares are selling at $14 per share (par value $10). At date of issue, the company recorded Share Premium—Conversion Equity of $50,000.
\r\nThe company records the conversion as follows.
\r\nBonds Payable 960,000
\r\nShare Premium—Conversion Equity 50,000
\r\nShare Capital—Ordinary 800,000
\r\nShare Premium—Ordinary 210,000
\r\nDiscuss the propriety of this accounting treatment.