Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000 shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as it would meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion option are not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that the bond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon the purchase of his security.? Dr. Debt security-trading Dr. Derivative financial instrument Cr. Cash Dr. Debt security-trading Cr. Cash Dr. Debt security-trading Dr. Derivative Financial Instrument Cr. Cash Cr. Other Comprehensive Income Dr. Debt security-trading Dr. Additional Paid-in Capital Cr. Cash $6,750,000 $750,000 $7,500,000 $ 7,500,000 $7,500,000 $7,500,000 $750,000 $7,500,000 $750,000 $6,750,000 $750,000 $7,500,000
Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000 shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as it would meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion option are not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that the bond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon the purchase of his security.? Dr. Debt security-trading Dr. Derivative financial instrument Cr. Cash Dr. Debt security-trading Cr. Cash Dr. Debt security-trading Dr. Derivative Financial Instrument Cr. Cash Cr. Other Comprehensive Income Dr. Debt security-trading Dr. Additional Paid-in Capital Cr. Cash $6,750,000 $750,000 $7,500,000 $ 7,500,000 $7,500,000 $7,500,000 $750,000 $7,500,000 $750,000 $6,750,000 $750,000 $7,500,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000
shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as it
would meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion option
are not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that the
bond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon the
purchase of his security.?
Dr. Debt security-trading
Dr. Derivative financial instrument
Cr. Cash
Dr. Debt security-trading
Cr. Cash
Dr. Debt security-trading
Dr. Derivative Financial Instrument
Cr. Cash
Cr. Other Comprehensive Income
Dr. Debt security-trading
Dr. Additional Paid-in Capital
Cr. Cash
$6,750,000
$750,000
$7,500,000
$ 7,500,000
$7,500,000
$7,500,000
$750,000
$7,500,000
$750,000
$6,750,000
$750,000
$7,500,000
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