Apply your critical-thinking ability to the knowledge you’ve gained. These cases will provide you an opportunity todevelop your research, analysis, judgment, and communication skills. You also will work with other students, integratewhat you’ve learned, apply it in real-world situations, and consider its global and ethical ramifications. This practice willbroaden your knowledge and further develop your decision-making abilities.It is not unusual to issue long-term debt in conjunction with an arrangement under which lenders receive an optionto buy common stock during all or a portion of the time the debt is outstanding. Sometimes the vehicle is convertible bonds; sometimes warrants to buy stock accompany the bonds and are separable. Interstate Chemical isconsidering these options in conjunction with a planned debt issue.“You mean we have to report $7 million more in liabilities if we go with convertible bonds? Makes no sense tome,” your CFO said. “Both ways seem pretty much the same transaction. Explain it to me, will you?”Required:Write a memo. Include in your explanation each of the following:1. The differences in accounting for proceeds from the issuance of convertible bonds and of debt instrumentswith separate warrants to purchase common stock.2. The underlying rationale for the differences.3. Arguments that could be presented for the alternative accounting treatment.
Apply your critical-thinking ability to the knowledge you’ve gained. These cases will provide you an opportunity to
develop your research, analysis, judgment, and communication skills. You also will work with other students, integrate
what you’ve learned, apply it in real-world situations, and consider its global and ethical ramifications. This practice will
broaden your knowledge and further develop your decision-making abilities.
It is not unusual to issue long-term debt in conjunction with an arrangement under which lenders receive an option
to buy common stock during all or a portion of the time the debt is outstanding. Sometimes the vehicle is convertible bonds; sometimes warrants to buy stock accompany the bonds and are separable. Interstate Chemical is
considering these options in conjunction with a planned debt issue.
“You mean we have to report $7 million more in liabilities if we go with convertible bonds? Makes no sense to
me,” your CFO said. “Both ways seem pretty much the same transaction. Explain it to me, will you?”
Required:
Write a memo. Include in your explanation each of the following:
1. The differences in accounting for proceeds from the issuance of convertible bonds and of debt instruments
with separate warrants to purchase common stock.
2. The underlying rationale for the differences.
3. Arguments that could be presented for the alternative accounting treatment.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
