g at lower rates. bonds will always sell at a premium. 2. ( L.O. 1) Binder Corporation issued at a premium of $50 a $1,000 bond convertible into 200 shares of common stock (par value $3). At the time of the conversion the unamortized premium is $40, the market value of the bond is $1,200, and the stock is quoted on the market at $6. If the bond is converted into common, what is the amount of the gain or loss to be recorded on redemption of the bonds payable? A. $240 B. $200 C. $160 D. $0 3. (L.O. 1) Calavita Company has outstanding $500,000 par value convertible bonds agrees to pay the holders convertible into 50,000 shares of $1 par value common stock. Calavita wishes to reduce its annual interest cost. To do so, the company of its convertible bonds an additional $45,000 if they will convert. Assuming conversion occurs, which of the following journal entries would be correct? A. Bonds Payable 500,000 45,000 Loss on Redemption of Bonds Payable Common Stock Paid-in Capital in Excess of Par-Common 50,000 450,000 45,000 Cash B. Bonds Payable 500,000 Common Stock Paid-in Capital in Excess of Par-Common Cash 50,000 405,000 45,000 500,000 45,000 C. Bonds Payable Premium on Bonds 50,000 Common Stock Paid-in Capital in Excess of Par-Common Cash 450,000 45,000 500,000 45,000 D. Bonds Payable Debt Conversion Expense 50,00 450,00 45,00 Common Stock Paid-in Capital in Excess of Par-Common Cash