The major difference between convertible debt and detachable stock warrants is that upon exercise of the warrants:- ○ No paid-in capital in excess of par can be part of the transaction- ○ The stock is held by the company for a defined period of time before they are issued to the warrant holder- ○ The stock involved is restricted and can only be sold by the recipient after a set period of time- ○ The holder has to pay a certain amount of cash to obtain the shares.

Convertible debt means debt is converted into to common stock at then end of debt period. In this,…

Answered: The major difference between…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Please assist by providing the correct answer for 1.1,1.2 and 1.3 1.1 There are limitations on the issuing and redemption of redeemable shares. Which ONE of the following is NOT an actual limitation? Select one: a. Redeemable shares cannot be issued if the only shares that the company has issued are redeemable shares. b. Redeemable shares can only be redeemed if they are fully paid-up. c. When redeeming shares, the company must pay fully for them at the time of redemption, unless the terms of redemption provide for a later date. d. Private companies can only issue redeemable shares if authorised by their articles. 1.2 Identify the statement that is correct regarding the paid up capital. Select one: a. If any of the shareholders has not paid amount on calls, such an amount may be called as ‘calls in arrears’. Therefore, paid up capital is equal to the called-up capital plus call in arrears. b. It is that portion of the called up capital which has been actually received from the…
27. If a long-term bonds becomes callable due to the violation of a debt covenant Group of answer choices a. The debt may continue to be classified as long term if the entity believes the covenant can be renegotiated. b. The debt must be reclassified as current. c. Cash must be reserved to pay the debt. d. Retained earnings must be restricted in the amount of the debt.
Mecca Energy Corp. issued a convertible bond on 1 August 20X9. The 10-year, 5% $16,000,000 bond pays interest semi-annually each 31 July and 31 January. At maturity, each $1,000 bond is convertible into 120 common shares. The bond was issued for $16,640,000. Market interest rates were approximately 6%. PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Provide the journal entry to record the initial issuance of the bond. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your time value to 5 decimal places and your final answers to the nearest whole dollar.) View transaction list Journal entry worksheet 1 Record the entry for issuance of bonds. Note: Enter debits before credits. Transaction 1 General Journal Debit Credit
Which of the following securities has a component of liquidity risk premium? Long-term government bonds only since all entities that issued long-term securities may be default in payment. All types of government or corporate security because these constituted to be a liability in the part of the issuer. Long-term corporate security because corporations may find it hard to convert assets to cash for payment. All government bond because this type of security is presumed to be always liquid.
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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…
Some financial instruments such as convertible bonds, preferred stocks, warrants and options can have both debt and shareholder’s equity features. They can be converted into common stock or into preferred stocks by investors. This topic has been debated for several years on whether: Viewpoint 1: Issuers should account for an instrument with both liability and equity characteristics entirely as a liability or entirely as an equity instrument depending on which characteristic governs. Viewpoint 2: Issuers should account for an instrument as consisting of a liability component and an equity component that should be accounted for separately. Which of the two viewpoints do you favor? Develop an argument in support of your choice. In considering this question, you should disregard the current position of the FASB on the issue. Instead, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by US GAAP and IFRS. Also, focus your…
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?.
1. How many of the following is/are advantage(s) of issuing bonds to raise capital? (A) Does not require interest payment when the entity is incurring severe losses; (B) Generally requires fixed interest payments which can easily be used in budgeting; (C) Interest is a tax-deductible expense.2. How many of the following is/are advantage(s) of issuing ordinary shares to raise capital? (A) No contractual obligation to pay dividends; (B) Presence of easily determinable maturity date; (C) Dividends are tax-deductible expenses.3. Which is true in these statements? Share warrants are often attached to debt instruments to entice creditors to also become ordinary shareholders especially when the entity would be unable to pay interests. [S2] An entity needing a large sum of financing would prefer issuing bonds with share warrants over bonds with conversion rights.4. Which is true in these statements? [S1] When unrelated traders buy and sell stocks, the entity which issued the shares will be…
In order for the seller of securitized securities to remove the assets (i.e. mortgages) from the balance sheet, the sale must a. have a service agreement b. be overcollateralized c. be without recourse d. be made at a discount (original issue discount)
A put provision gives the investor the right but not the obligation to sell the bond back to the company. True False

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