Reference no: EM132467683

Wang Inc. has $ 3,000,000 (par value), 8% convertible bonds outstanding. Each $ 1,000 bond is convertible into thirty no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2020, the holders of $ 900,000 worth of bonds exercised the conversion privilege. On that date the market price of the bonds was 105, the market price of the common shares was $ 36, the carrying value of the common shares was $ 18 and the Contributed Surplus-Conversion Rights account balance was $ 450,000.

Question 1: The total unamortized bond premium at the date of conversion was $ 210,000. Using the book value method, Wang should record, as a result of this conversion,

a) a credit of $ 135,000 to Contributed Surplus-Conversion Rights.

b) a debit of $ 135,000 to Contributed Surplus-Conversion Rights.

c) a credit of $ 63,000 to Bonds Payable.

d) a debit of $ 210,000 to Bonds Payable.