Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 ordinary shares immediately after an interest payment date. At that time, the market price of the debentures is 104, and the ordinary shares are selling at $14 per share (par value $10). At date of issue, the company recorded Share Premium—Conversion Equity of $50,000. The company records the conversion as follows.Bonds Payable960,000 Share Premium—Conversion Equity50,000 00Share Capital—Ordinary 800,00000Share Premium—Ordinary 210,000Discuss the propriety of this accounting treatment.

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Asked Feb 6, 2020
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Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 ordinary shares immediately after an interest payment date. At that time, the market price of the debentures is 104, and the ordinary shares are selling at $14 per share (par value $10). At date of issue, the company recorded Share Premium—Conversion Equity of $50,000. The company records the conversion as follows.

Bonds Payable
960,000
 
Share Premium—Conversion Equity
50,000
 
00Share Capital—Ordinary  
800,000
00Share Premium—Ordinary  
210,000

Discuss the propriety of this accounting treatment.

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