Marinara, Inc. issued a 3-year term 2,000 convertible bonds on January 1, 2021 at 110 with a face value of P1,000 per bond. Interest is payable on annual basis at a stated rate of 6%. The said bonds may be converted anytime into 100 shares with par value of P5. From the time of the issuance of the convertible bonds, the prevailing market rate for similar debt without any conversion feature is 9%. Present value factor of P1 lumpsum using 9% for 3 periods is .77 Present value factor of P1 ordinary annuity using 9% for 3 periods is 2.53 Required: What is the liability component of the issuance of the convertible bonds on January 1, 2021? What is the equity component of the issuance of the convertible bonds on January 1, 2021?

Marinara, Inc. issued a 3-year term 2,000 convertible bonds on January 1, 2021 at 110 with a face value of P1,000 per bond. Interest is payable on annual basis at a stated rate of 6%. The said bonds may be converted anytime into 100 shares with par value of P5. From the time of the issuance of the convertible bonds, the prevailing market rate for similar debt without any conversion feature is 9%. Present value factor of P1 lumpsum using 9% for 3 periods is .77 Present value factor of P1 ordinary annuity using 9% for 3 periods is 2.53 Required: What is the liability component of the issuance of the convertible bonds on January 1, 2021? What is the equity component of the issuance of the convertible bonds on January 1, 2021?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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