On January 1, 20x1, ELABORATE COMPLICATED Co. issued 3-year, 10%, P4,000,000 convertible bonds for P4,400,000. Principal is due at maturity but interest is payable every year-end. The bonds are convertible into 6,000 ordinary shares with par value of P400. At issuance date, the prevailing market rate of interest for similar debt without conversion feature is 12%. On December 31, 20x2, all the convertible bonds were retired for P4,000,000. The prevailing rate of interest on a similar debt instrument as of December 31, 20x2 is 11% without the conversion feature. How much is gain (loss) on the extinguishment of the bonds on December 31, 20x2?

On January 1, 20x1, ELABORATE COMPLICATED Co. issued 3-year, 10%, P4,000,000 convertible bonds for P4,400,000. Principal is due at maturity but interest is payable every year-end. The bonds are convertible into 6,000 ordinary shares with par value of P400. At issuance date, the prevailing market rate of interest for similar debt without conversion feature is 12%. On December 31, 20x2, all the convertible bonds were retired for P4,000,000. The prevailing rate of interest on a similar debt instrument as of December 31, 20x2 is 11% without the conversion feature. How much is gain (loss) on the extinguishment of the bonds on December 31, 20x2?

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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Question

On January 1, 20x1, ELABORATE COMPLICATED Co. issued 3-year, 10%, P4,000,000 convertible bonds
for P4,400,000. Principal is due at maturity but interest is payable every year-end. The bonds are convertible
into 6,000 ordinary shares with par value of P400. At issuance date, the prevailing market rate of interest for
similar debt without conversion feature is 12%.
On December 31, 20x2, all the convertible bonds were retired for P4,000,000. The prevailing rate of interest
on a similar debt instrument as of December 31, 20x2 is 11% without the conversion feature.
How much is gain (loss) on the extinguishment of the bonds on December 31, 20x2?

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