Immediately after the last interest payment Henry Company co

Immediately after the last interest payment, Henry Company converted $2,700,000 of its bonds into 270,000 shares of $10 par value common stock. The unamortized premium on the bonds at the date of the conversion was $900,000. As a result of this conversion O A. liabilities decreased by $3,600,000 and stockholders\' equity increased by $3,600,000. 0 B. liabilities decreased by $3,600,000 and stockholders\' equity decreased by $3,600,000. O C. liabilities decreased by $900,000 and stockholders\' equity increased by $900,000. O D. liabilities decreased by $2,700,000 and stockholders\' equity increased by $2,700,000.

Solution

Journal entry :

So answer is a) Liabilities decreased by $3600000 and Stockholder\'s equity increased by $3600000

Date	accounts & explanation	debit	credit
	Bonds payable	2700000
	Premium on bonds payable	900000
	Common Stock (270000*10)		2700000
	Paid in capital in excess of par value-Common Stock		900000