Arco, Inc. issued $450,000 of 4%, 10-year convertible bonds at par on July 1, 2018. Each bond has a par value of $1,500. The bonds include the option for bondholders to convert each bond into 50 $1 par value shares of common stock beginning two years after the date of issue. The market price of the stock at the time of issue is $35 per share and the beneficial conversion option is valued at $75,000. On July 2, 2020, when the market price of the stock is $45 and the balance in the Discount account is $66,000, all of the bondholders convert the bonds. What is the proper entry to record the conversion of the bonds?
A)

\begin{array}{|c|c|c|c|}\hline \text { Date } & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { July 2,2020 } & \text { Bonds Payable } & 450,000 & \\\hline & \text { Discount on Bonds Payable } & 75,000 & \\\hline & \text { Common Stock, } \$ 1 \text { par, } 15,000 \text { shares } & & 450,000 \\\hline & \begin{array}{l}\text { Add. Paid-in Capital-Bene. Conv. } \\\text { Option }\end{array} & &75,000 \\\hline\end{array}

\begin{array}{|l|l|r|r}\hline\text { Date } & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { July 2, } 2020 & \text { Bonds Payable } & 450,000 & \\\hline & \text { Add. Paid-in Capital--Bene, Conv. Option } & 75,000 & \\\hline & \text { Discount on Bonds Payable } & & 66,000 \\\hline & \text { Common Stock, } \$ 1 \text { par, } 15,000 \text { shares } & & 15,000 \\\hline & \begin{array}{l}\text { Add. Paid-in Capital in Excess } \\\quad \text { of Par-Common }\end{array} && 444,000\\\hline\end{array}

\begin{array}{|l|r|r|r}\hline \text { Date } & \text { Account } & \text { Debit } & \text { Credit }\\\hline \text { July 2, } 2020 & \text { Bonds Payable } & 450,000 & \\\hline & \text { Beneficial Conversion Option } & 60,000 & \\\hline & \text { Discount on Bonds Payable } & & 66,000 \\\hline & \begin{array}{c}\text { Add. Paid-in Capital in Excess } \\\text { of Par-Common }\end{array} & & 444,000 \\\hline\end{array}

\begin{array}{|l|l|r|r}\hline\text { Date } & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { July 2, } 2020 & \text { Bonds Payable } & 450,000 & \\\hline & \text { Discount on Bonds Payable } & 66,000 & \\\hline & \text { Common Stock, } \$ 1 \text { par, } 15,000 \text { shares } & & 15,000 \\\hline & \begin{array}{c}\text { Add. Paid-in Capital in Excess } \\\text { of Par-Common }\end{array} & & 501,000 \\\hline\end{array}

Martin, Inc

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