Kelley Co. has $2,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2014, the holders of $500,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $112,500. Kelley should record, as a result of this conversion, a 

A. loss of $540,000.

B. credit of $28,125 to Premium on Bonds Payable.

C. credit of $78,125 to Paid-in Capital in Excess of Par.

D. credit of $421,875 to Paid-in Capital in Excess of Par

Answer rating: 100% (QA)

A 1 Particulars Debit Credit 2 Bonds payable 500000 Premium ... View the full answer