Problem 3

Hrustic Company issued $750,000 of 12% convertible bonds at face value on an interest payment date several years ago. The face value of each bond is $1,000, and each bond is convertible into 25 shares of $1 par common stock. Hrustic has embarked on a program of debt reduction; U.S. interest rates have declined during the term of the convertible bonds. Consequently, Hrustic offers the convertible bondholders $500 cash per bond as an inducement to convert. The market price of Hrustic stock is currently $70 per share. The bonds must be converted within a three-month period to receive the cash inducement. The bondholders accept the inducement and convert within the required period.

Required:

1. Explain why the bondholders decided to convert their bonds into shares of common stock.
2. Record the conversion using the book value method.

Just need b figured.

So far I got this:

BP ...........................375000

Discount on BP

Common Stock...................................18750

add. paid in capital