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On January 1, 2016, when its $30 par value common stock wasselling for $80 per share, Monty Corp. issued $11,100,000 of 8%convertible debentures due in 20 years. The conversion optionallowed the

On January 1, 2016, when its $30 par value common stock wasselling for $80 per share, Monty Corp. issued $11,100,000 of 8%convertible debentures due in 20 years. The conversion optionallowed the holder of each $1,000 bond to convert the bond intofive shares of the corporation’s common stock. The debentures wereissued for $11,988,000. The present value of the bond payments atthe time of issuance was $9,435,000, and the corporation believesthe difference between the present value and the amount paid isattributable to the conversion feature. On January 1, 2017, thecorporation’s $30 par value common stock was split 2 for 1, and theconversion rate for the bonds was adjusted accordingly. On January1, 2018, when the corporation’s $15 par value common stock wasselling for $135 per share, holders of 30% of the convertibledebentures exercised their conversion options. The corporation usesthe straight-line method for amortizing any bond discounts orpremiums. a. Prepare the entry to record the exercise of theconversion option, using the book value method.

Jun 07 2021 View more View Less

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