Crane Company issued 5880000 of 11 tenyear convertible bonds

Crane Company issued $5880000 of 11%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest.

The bonds were dated April 1, 2017 with interest payable April 1 and October 1.

Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1360000 of these bonds were converted into 600 shares of $20 par value common stock.

Accrued interest was paid in cash at the time of conversion.

What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? (rounded to the nearest dollar)

$26520.

$48960.

$53040.

$50640.

Solution

Issue bond price = 5880000*96.1/100 = 5650680

Discount on bonds payable = 5880000-5650680 = 229320

Semiannual amortization of discount of bonds = 229320/20 = 11466 per semiannual period

Discount on bond related of 1360000 = 1360000*3.9/100 = 53040

SO answer is c) $53040