Financial Accounting

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Gain or Loss for Conversion of Bonds


BearWorld Co. issues \$1,000,000 par value (1,000 shares with \$1,000 par value), 10-year, 5% convertible bonds at 95 for cash on January 1, 2015. Each convertible bond can be converted into 50 shares of \$10 par value common stock. If the bonds were not convertible, they would sell at 90. The company pays interests on July 1 and December 31 of each year. Any premium or discount is amortized by using the straight-line method. All investors choose to convert on December 31, 2015 when the market price of the stock is \$18 per share.

(1): When converting to common stock, what is the amount of gain or loss (in \$) reported by BearWorld?

(2): When converting to common stocks, what is the change in stockholders' equity for BearWorld (in \$​)?