Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?

$119,000

Explanation:

Bonds issue price:

= Bond price + Premium

= $200,000 + $5,000

= $205,000

Premium amortized:

= Premium - Unamortized premium

= $10,000 - $4,000

= $6,000

Current book value of bonds:

= Bonds issue price - Premium amortized

= $205,000 - $6,000

= $199,000

Paid-in capital in excess of par:

= Current book value of bonds - Convertible shares amount

= $199,000 - (4,000 shares × $20 par value)

= $199,000 - $80,000

= $119,000

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