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rdinary shares with P50 par value for a combined cash amount of P11,000,000. The market value of the ordinary share cannot be det

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 11QE

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AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2018. The bonds sold for$150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, AI elected theoption to report these bonds at their fair value. On June 30, 2018, the fair value of the bonds was $145 millionas determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rateincrease or decrease? Will the gain or loss be reported in net income or as OCI?
On January 1, 2018, Brandon Electronics issued $85 million of 11.5% bonds, dated January 1. The market yieldfor bonds of maturity issued by similar firms in terms of riskiness is 12.25%. How can Brandon sell debt payingonly 11.5% in a 12.25% market?
Suppose Google, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 8%, $3,900,000 par value bonds were converted into 487,500 shares of $1 par value common stock on July 1, 2017. On July 1, there was $24,000 of unamortized discount applicable to the bonds, and the company paid an additional $33,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Hurley Co. has outstanding $420 million face amount of 9% bonds that were issued on January 1, 2007, for $409,500,000. The 20-year bonds mature on December 31, 2026, and are callable at 102 (i.e., they can be paid off at any time by paying the bondholders 102% of the face amount).
The balance sheet at December 31, 2016, for Nevada Harvester Corporation includes the liabilities listed below: a. 11% bonds with a face amount of $40 million were issued for $40 million on October 31, 2007. The bonds mature on October 31, 2027. Bondholders have the option of calling (demanding payment on) the bonds on October 31, 2017, at a redemption price of $40 million. Market conditions are such that the call is not expected to be exercised. b. Management intended to refinance $6 million of its 10% notes that mature in May 2017. In early March, prior to the actual issuance of the 2016 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $5 million any time during 2017. Any borrowings will mature two years from the date of borrowing. c. Noncallable 12% bonds with a face amount of $20 million were issued for $20 million on September 30, 1994. The bonds mature on September 30, 2017. Sufficient cash is expected to be available to retire…
On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $5.7 million for cash. The bonds mature in 6 years and were issued at a price of $3,798,138. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: What will Morton Sales Co. report on these bonds in its December 31, 2018, balance sheet?
AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2016. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, AI elected the option to report these bonds at their fair value. On June 30, 2016, the fair value of the bonds was $145 million as determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease? Will the gain or loss be reported in net income or as OCI?
4. What is the equity equity component arising from the insurrance bonds payable on January 1, 2016? 5. What is the loss on the extingushed of the convertible bonds payable on December 31.2018
14. On January 1, 2012, London Company issued its 9% bonds in the face amount of P2.0 million which mature on January 1,2022. The bonds were issued for P1,878,000O to yield 10% resulting in a bond discount of P122,000. London Company uses the interest method of amortizing bond discount. Interest is payable annually on December 31. What is the carrying value of the bonds at December 31, 2012? * a. P1,885,800 b. P1,896,000 c. P1,896,780 O d. P1,898,000
7. On May 1, 2012, Maine Company issued P2 million 20- year, 10% bonds for P2,120,000. Each P1,000 bond had a detachable warrant eligible for the purchase of one share of Maine's P50 par ordinary share for P60. Immediately after the bonds were issued, Maine's securities had the market values as shown in the image. What amount should Maine credit to premium on bonds payable? * 10% Bond without warrant P1,040 Warrant 20 Ordinary share, P50 par 56 a. P120,000 b. P80,000 O c. P40,000 d. PO
20. On December 31, 2011, Cey Company had outstanding 10%,P1,000,000 face amount convertible bonds payable maturing on December 31, 2014. Interest is payable on June 30 and December 31. Each P1,000 bond is convertible into 50 shares of P10 par value. On December 31, 2011, the unamortized premium on bonds payable was P60,00O. On December 31, 2011, 400 bonds were converted when Cey's share had a market price of P24. Cey incurred P4,000 in connection with the conversion. No-equity component was recognized when the bonds were originally issued. What is the share premium from the issuance of shares as a result of the bond conversion on December 31, 2011? a. 176,000 b. 220,000 c. 276,000 d. 280,000
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