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Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on Docombor 31 2031

Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on Docombor 31 2031

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.2E
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Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on December 31, 2021. The following present value factors are obtained from the present value tables 6% 9% Present value of 1 for 3 periods 0.83962 0.77218 Present value of an ordinary annuity of 1 for 3 periods 2.67301 Present value of an annuity due of 1 for 3 periods 21. The liability component of the convertible debt is a. P4,000,000 P3,730,242 2.53130 2.83339 2.75911 b. P3,696,232 c. P1,600,00O d. 22. The equity component of the convertible debt is a. P303,768 b. P1,973,621 c. P1,600,000 d. P2,400,000 23. The interest expense to be reported on Rosal Company's income statement for the year ended December 31, 2021 is a. P101,000 b. P110,107 c. P240,000 d. P341,000
Transcribed Image Text:Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on December 31, 2021. The following present value factors are obtained from the present value tables 6% 9% Present value of 1 for 3 periods 0.83962 0.77218 Present value of an ordinary annuity of 1 for 3 periods 2.67301 Present value of an annuity due of 1 for 3 periods 21. The liability component of the convertible debt is a. P4,000,000 P3,730,242 2.53130 2.83339 2.75911 b. P3,696,232 c. P1,600,00O d. 22. The equity component of the convertible debt is a. P303,768 b. P1,973,621 c. P1,600,000 d. P2,400,000 23. The interest expense to be reported on Rosal Company's income statement for the year ended December 31, 2021 is a. P101,000 b. P110,107 c. P240,000 d. P341,000
24. The entry to record the bond conversion on December 31, 2021, should include a credit to share premium - issuance of a. P2,289,893 b. P2,400,000 c. P2,593,661 d. PO
Transcribed Image Text:24. The entry to record the bond conversion on December 31, 2021, should include a credit to share premium - issuance of a. P2,289,893 b. P2,400,000 c. P2,593,661 d. PO
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1. what is the interest expense recognized for the year 2021?

2. what is the share premium to be recognized in relation to the conversion of the convertible bonds?

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