Problem 7-14 On December 31,2020, Cey Company had outstanding 12% P5,000,000 face amount convertible bonds maturing on December 31,2025. Intereset is payable on June 30 and December 31. Each P1,000 bond is convertible into 50 shares of Cey Company with P10 par value. On December 31,2020, the unamortized balance in the premium on bonds payable account was P300,000. No equity component was recognized from the original issuance of the convertible bonds. On December 31,2020, 2,000 bonds were converted when the share had a market price of P24. The entity incurrd P20,000 in connection with the bond conversion. 1. What is the share premium arising from the bond conversion? A. 1,400,000 B. 1,100,000 C. 1,380,000 D. 1,120,000
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Problem 7-14
On December 31,2020, Cey Company had outstanding 12% P5,000,000 face amount convertible bonds maturing on December 31,2025.
Intereset is payable on June 30 and December 31. Each P1,000 bond is convertible into 50 shares of Cey Company with P10 par value.
On December 31,2020, the unamortized balance in the premium on bonds payable account was P300,000. No equity component was recognized from the original issuance of the convertible bonds.
On December 31,2020, 2,000 bonds were converted when the share had a market price of P24. The entity incurrd P20,000 in connection with the bond conversion.
1. What is the share premium arising from the bond conversion?
A. 1,400,000
B. 1,100,000
C. 1,380,000
D. 1,120,000
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