The Monaco Corporation has $800,000 of 6 percent, $1,000 bonds outstanding. There is $40,000 of unamortized discount

Question:

The Monaco Corporation has $800,000 of 6 percent, $1,000 bonds outstanding. There is $40,000 of unamortized discount remaining on these bonds after the July 1, 2011, semiannual interest payment. The bonds are convertible at the rate of 20 shares of $10 par value common stock for each $1,000 bond. On July 1, 2011, bondholders presented $600,000 of the bonds for conversion.

1. Is there a gain or loss on conversion? If so, how much is it?

2. How many shares of common stock are issued in exchange for the bonds?

3. In dollar amounts, how does this transaction affect the total liabilities and the total stockholders’ equity of the company? In your answer, show the effects on four accounts.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...