On 1 July 2020,Kitshoff Ltd issues 5,000 convertible notes. The three-year term and are issued at par with a face value of $4,000 per note, giving total proceeds at the date of issue of $20 million. The notes pay a coupon of 5% p.a. annually in arrears (payable 30/6). The holder of each note has the option to convert the note into 500 ordinary shares of Kishoff Ltd at the end of three years. When the notes are issued, the market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 8% p.a. Required Prepare the journal entries for Kitshoff to record this transaction on 1.1 July 2020 when the convertible note is issued 2. 30 June 2021 when first coupon is payable

On 1 July 2020,Kitshoff Ltd issues 5,000 convertible notes. The three-year term and are issued at par with a face value of $4,000 per note, giving total proceeds at the date of issue of $20 million. The notes pay a coupon of 5% p.a. annually in arrears (payable 30/6). The holder of each note has the option to convert the note into 500 ordinary shares of Kishoff Ltd at the end of three years. When the notes are issued, the market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 8% p.a. Required Prepare the journal entries for Kitshoff to record this transaction on 1.1 July 2020 when the convertible note is issued 2. 30 June 2021 when first coupon is payable

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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On 1 July 2021 Michael Ltd. issues $1 million in five – year debentures that pay interest each six months at a coupon rate of 10% per annum. At the time of issuing the securities, the market requires a rate of return of 12% per annum . Interest expense is determined using the effective-interest method. Required: Determine if the issuance of the debenture is at premium or discount? Determine the issue price of the debentures? Prepare journal entries at issue date on 1 July 2021 (assuming the debentures are issued privately)? Pass the journal entry for the first interest payment ?
Mae Jong Corporation issues 1,000 convertible bonds at the beginning of 2021. The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of P1,000 per bond (total proceeds received from issuance of the bonds are P1,000,000). Interest is payable annually at December 31. Each bond is convertible into 250 ordinary shares with a par value of P1. The market rate of interest on similar non-convertible debt is 9 percent. Compute the liability component of Mae Jong’s convertible debt. PV of 1 for 4 periods PV of Ordinary Annuity for 4 periods 6% 0.79209 3.46611 9% 0.70843 3.23972 The issuance of convertible bonds increased the entity’s equity by:
On January 2, 2021, A Corporation offers to sell a P100,000 bond coming due in 10 years. The bond pays interest of 4% at the end of each year. A Corporation finds a buyer who wants to earn 7% each year, and agrees to the 7% rate at a sales price of P80,000. On the December 31, 2021 balance sheet, what amount is reported for the liability of this bond? a. 96,000 b. 93,000 c. 85, 600 d. 83,200
On 1 July 2023 Tamasek Ltd issues convertible notes with a face value of $10 million. The convertible notes have a 20-year term and mature on 30 June 2043. Interest is payable semi-annually in arrears, i.e. on 31 December and 30 June each year, and the coupon rate of interest is 7.5% p.a., At around the same point in time, companies with a similar credit rating issue debt securities without a conversion option with a coupon rate of 10% p.a., payable semi-annually. Required: Determine the debt and equity components of the convertible notes issued using the residual valuation method. Prepare the entries of Tamasek Ltd to account for the convertible notes over the period 1 July 2023 to 30 June 2025.
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On March 1, 2024, Baddour, Incorporated, issued 10% bonds, dated January 1, with a face amount of $160 million. The bonds were priced at $142.00 million (plus accrued interest) to yield 12%. The price if issued on January 1 would have been $139.25 million. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30. Required: 1. to 3. What would be the amount(s) related to the bonds Baddour would report in its balance sheet, income statement and statement of cash flows for the year ended September 30, 2024?
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