The major difference between a convertible debt and share warrants is that upon exercise of the warrants a. No share premium can be part of the transaction. b. The shares involved are restricted and can only be sold by the recipient after a set period of time c. The holder has to pay

The major difference between a convertible debt and share warrants is that upon exercise of the warrants a. No share premium can be part of the transaction. b. The shares involved are restricted and can only be sold by the recipient after a set period of time c. The holder has to pay

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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The proceeds from a bond issued with non-detachable share purchase warrants should be accounted for entirely as bonds payable entirely as shareholders’ equity partially as unearned revenue and partially as bonds payable partially as shareholders’ equity and partially as bonds payable
6. What is the accounting for issued convertible bond?. a. The instrument should be recorded solely as bond. b. The instrument should be recorded as either.bond or equity but not both. The instrument should be recorded solely as equity. d. The instrument should be recorded as part bond and part equity. 7. Issued convertible bonds are ponente d Separated into liability and equity components with the liability component recorded at fair value and the residual assigned to the equity component b. Always recorded using the fair value option c. Recorded at face amount for the liability d. Recorded at the par value of shares 07 8. The carrying amount of bonds converted was greater than the par value of the ordinary shares issued. Which correctly states an effect of the conversion? a. Shareholders' equity increased b. Share premium decreased C. Retained earnings increased d. A loss is recognized 9. The conversion of bonds payable into ordinary shares is commonly recorded by a wond a.…
To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential. For example: • A bond’s refers to the interest payment or payments paid by a bond. • A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants. • The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called . • A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions. Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information: Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00 What is the issuing date of this bond? 7-15-2005 7-15-2055…
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Puttable bonds are the bonds which are redeemed only on the liquidation of the company. T/F?
Question: A company enters into a complex financial transaction involving the issuance of convertible bonds with detachable stock purchase warrants. As part of this transaction, the company receives cash upfront from investors and agrees to issue convertible bonds that can be converted into the company's common stock at the investors' option. Additionally, the investors receive detachable stock purchase warrants that allow them to purchase additional shares of the company's common stock at a predetermined price within a specified period. How should the company account for the issuance of convertible bonds and the detachable stock purchase warrants in its financial statements? A) Treat the convertible bonds as a liability and the detachable warrants as equity, recognizing the cash received as a long-term liability. B) Treat the entire transaction as equity, recognizing the cash received as additional paid-in capital. C) Separate the convertible bonds and detachable warrants,…
True/FalseIndicate whether the statement is true or false. 1. A liability is recorded as a result of past events or transactions. 2. If the stated interest rate for a bond issue exceeds the market interest rate, the bonds will sell at a discount. 3. Convertible bonds can be exchanged for another form of security, such as common stock, at the option of the issuer. 4. If a lease transfers ownership of the property to the lessee by the end of the lease term, it will be classified as a capital lease by the lessee. 5. The acquisition cost of property includes only the original purchase price or equivalent value. 6. When property is acquired by issuing securities, the transaction is always recorded at the fair market value of the asset acquired. 7. Depreciation is the systematic and rational allocation of asset cost over the periods benefitted by the use of the asset. 8. The…
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Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.
The Share Premium arising from the conversion of bonds can be computed by deducting the par value of the issued shares from the sum of the following, except a.)Conversion Privilege Premium, only to the extent converted b.)Carrying amount of the convertible bonds c.)All of these are added to get the Share Premium d.)Cash received from the conversion
A put provision gives the investor the right but not the obligation to sell the bond back to the company. True False
Potential ordinary shares include the following, except: a. financial liabilities (or equity instruments), including preference shares, that are convertible into ordinary shares b. options and warrants c. shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business, or other assets d. treasury shares that have been canceled e. none of the above