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Nattel Corp. issues 10,000, $1,000 face amount bonds at 104. Each bond can be converted into 25 shares of no-par common stock. Two years after issuance, 25% of the bondholders convert their bonds. The balance in the premium on bonds payable account is $300,000. Nattel should recognize this conversion by crediting common stock for

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Cricetus

Answer:

The correct answer is "$2,575,000".

Explanation:

Given:

Face amount,

= $1,000

Nattel corp. issues,

= 10,000

Number of bondholders convert their bond,

= 25%

Balance in premium,

= $300,000

Now,

Nattel should recognize by crediting,

= [tex](10,000\times 1,000 + 300,000)\times 25 \ percent[/tex]

= [tex](10,000,000+3000,000)\times 0.25[/tex]

= [tex]10,300,000\times 0.25[/tex]

= [tex]2,575,000[/tex] ($)

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