OKelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1,

Question:

O’Kelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1, 2002, for $2 million. The 20-year bonds were issued in $1,000 denominations and mature on December 31, 2021. Each $1,000 bond is convertible at the bondholder’s option into five shares of $10 .

Required:
a. Under what circumstances would O’Kelley Co.’s bondholders consider converting the bonds?
b. Assume that the market price of O’Kelley Co.’s is now $215 and that a bondholder elects to convert 400 $1,000 bonds. Use the horizontal model (or write the journal entry) to show the effect of the conversion on O’Kelley Co.’s financial statements.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...