Chapter 14, Problem 14.1BYP

To determine

Convertible bond

Convertible bonds are a kind of bonds that can be easily converted into common stock at the option of the issuer of the bond.

Detachable Stock Purchase Warrants

A stock warrant gives the buyer an option to acquire a declared number of shares of common stock at a specific option price within a particular time period.

To Write: The A short letter to CFO explaining the difference in accounting for proceeds from the issuance of convertible bonds and separate warrants to purchase of common stock, and present the alternative accounting treatment.