Haya Co. sold convertible bonds at a premium. Interest is paid on May 31 and November 30. On May 31, after interest was paid, 100, 1,000 bonds are tendered for conversion into 3,000 shares of 10 par value ordinary shares that had a market price of 40 per share. How should Haya Co. account for the conversion of the bonds into ordinary shares under the book value method? Discuss the rationale for this method. Solution To account for the conversion of bonds under the book value method, Bonds Payable should be debited for the carrying value, and Share Capital-Ordinary should be credited at par for the shares issued. Using the book value method, no gain (loss) on conversion is recorded. The amount to be recorded for the shares is equal to the book (carrying) value (face value plus unamortized premium) of the bonds. Share Premium-Ordinary would be credited for the difference between the book value of the bonds and the par value of the shares issued. The rationale for the book value method is that the conversion is the completion of the transaction initiated when the bonds were issued. Since this is viewed as a transaction with shareholders, no gain (loss) should be recognized