Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value ofP1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond isconvertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. Onthat date of issuance, the prevailing market interest rate for similar debt without the conversion privilegewas 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted onDecember 31, 2021.The following present value factors are obtained from the present value tables6%9%Present value of 1 for 3 periods0.839620.77218Present value of an ordinary annuity of 1 for 3 periods 2.67301Present value of an annuity due of 1 for 3 periods21. The liability component of the convertible debt isa. P4,000,000P3,730,2422.531302.833392.75911b. P3,696,232c. P1,600,00Od.22. The equity component of the convertible debt isa. P303,768b. P1,973,621c. P1,600,000d.P2,400,00023. The interest expense to be reported on Rosal Company's income statement for the year endedDecember 31, 2021 isa. P101,000b. P110,107c. P240,000d. P341,000 24. The entry to record the bond conversion on December 31, 2021, should include a credit to sharepremium - issuance ofa. P2,289,893b. P2,400,000c. P2,593,661d. PO

Given : Time to maturity = 3 years No. of convertible bonds = 4000 Face value = P1000 Coupon rate =…

Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on Docombor 31 2031

Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on Docombor 31 2031

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

Problem 6 - on January 1, 2020, Rosal Company issued a 3-year 4,000 convertible bonds at face value of
P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is
convertible, at the holder's option, into 200 P2 par value ordinary shares at any time up to maturity. On
that date of issuance, the prevailing market interest rate for similar debt without the conversion privilege
was 9%, on the same date, the market price of one ordinary share was P3. The bonds were converted on
December 31, 2021.
The following present value factors are obtained from the present value tables
6%
9%
Present value of 1 for 3 periods
0.83962
0.77218
Present value of an ordinary annuity of 1 for 3 periods 2.67301
Present value of an annuity due of 1 for 3 periods
21. The liability component of the convertible debt is
a. P4,000,000
P3,730,242
2.53130
2.83339
2.75911
b. P3,696,232
c. P1,600,00O
d.
22. The equity component of the convertible debt is
a. P303,768
b. P1,973,621
c. P1,600,000
d.
P2,400,000
23. The interest expense to be reported on Rosal Company's income statement for the year ended
December 31, 2021 is
a. P101,000
b. P110,107
c. P240,000
d. P341,000

24. The entry to record the bond conversion on December 31, 2021, should include a credit to share
premium - issuance of
a. P2,289,893
b. P2,400,000
c. P2,593,661
d. PO

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Follow-up Question

1. what is the interest expense recognized for the year 2021?

2. what is the share premium to be recognized in relation to the conversion of the convertible bonds?

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