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大家帮我看看这个题吧,, 偶正自学这一门课,郁闷没有同学可以讨论.看得我脑子都锈豆了.:S Re: Conversion of Bonds:

armani7(.)
本文发表在 rolia.net 枫下论坛on Jan, 1 04, when its common shares were selling for $80/share, Plato Co. issued $10 million of 8% convertible debentures due in 20yrs. The conversion option allowed the holder of each $1000 bond to convert the bond into 5 common shares. The debentures were issued for $10.8 million. The bond payment's present value at the time of issuance was $8.5 million. and the corporation believes the difference between the present value and the the amount paid is attributable to the conversion feature.

On Jan. 1 2005, the corporation's common shares were spilt 2 for 1, and the conversion rate for the bonds was adjusted accordingly.

On Jan. 1 06, when the Corp. common shares were selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The Corp. uses the straight-line method for amortizing any bond discounts or premiums.

Q:
1. Prep. the general Journal form the entry to record :

a)The original issuance of the convertible debentures?
b)The exercise of the conversion option (book value method)

Based on my understanding, the bond's PV is 8.5 million, and the face value is10 million, non-interest carrying. the market interst rate is 8%. But what's the 10.8 million for?

Any comments? Please help. Thanks alot.更多精彩文章及讨论，请光临枫下论坛 rolia.net
(#423@41)
Last Updated: 2007-2-12
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  • 大家帮我看看这个题吧,, 偶正自学这一门课,郁闷没有同学可以讨论.看得我脑子都锈豆了.:S Re: Conversion of Bonds: -armani7(.); 2007-2-12 {1290} (#423@41)
    本文发表在 rolia.net 枫下论坛on Jan, 1 04, when its common shares were selling for $80/share, Plato Co. issued $10 million of 8% convertible debentures due in 20yrs. The conversion option allowed the holder of each $1000 bond to convert the bond into 5 common shares. The debentures were issued for $10.8 million. The bond payment's present value at the time of issuance was $8.5 million. and the corporation believes the difference between the present value and the the amount paid is attributable to the conversion feature.

    On Jan. 1 2005, the corporation's common shares were spilt 2 for 1, and the conversion rate for the bonds was adjusted accordingly.

    On Jan. 1 06, when the Corp. common shares were selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The Corp. uses the straight-line method for amortizing any bond discounts or premiums.

    Q:
    1. Prep. the general Journal form the entry to record :

    a)The original issuance of the convertible debentures?
    b)The exercise of the conversion option (book value method)

    Based on my understanding, the bond's PV is 8.5 million, and the face value is10 million, non-interest carrying. the market interst rate is 8%. But what's the 10.8 million for?

    Any comments? Please help. Thanks alot.更多精彩文章及讨论，请光临枫下论坛 rolia.net
    • the corporation believes the difference between the present value (8.5m)and the the amount paid (10.8) is attributable to the conversion feature. -linpine(linpine); 2007-2-12 (#424@41)
      • Could you give more details about the contribution feature? It's that means the surplus? I record the transactions included, please have a look for me, Thank you and I appreciate your help. -armani7(.); 2007-2-12 {456} (#428@41)
        1. Jan-1-2004
        Dr. Cash 10,000,000
        dr. Discount on Bonds Payable 800,000
        Cr. Bonds Payable 10,000,000
        Cr. Contributed Surplus-Stock Options 800,000

        2.
        Dr. Bonds Payable 10,000,000
        Dr. Contributed Surplus-Stock Options 2,300,000
        Cr. Discount on Bonds Payable 800,000
        Cr. Common Shares 11,500,000
        • first we need to understand conversion feature and is it sold on discount or premium, and GAAP requirement on accounting for conversion feature. -linpine(linpine); 2007-2-13 {209} (#460@41)
          1. i came up this g/l, don't remember the exact a/c:
          Dr. Cash 10.8 million
          Premium on sale of debenture 1.5 million
          Cr. Debentures (bonds) 10 million
          Convertible option 2.3 million
          • Thank you. -armani7(.); 2007-2-13 {227} (#474@41)
            I checked with my long- distance teacher this afternoon, I would like to share the first entry with you:

            Dr. Cash 10.8 million
            Cr Premium on bonds payable 800,000
            Cr. Bonds Payable 10m.

            Thanks again for ur help. ^_^
            • OMG, much simpler than i thought, let me go back to check my old textbook. -linpine(linpine); 2007-2-13 (#477@41)
            • Here is what i found and came up again -linpine(linpine); 2007-2-13 {363} (#479@41)
              The entry your teacher gave to you is called memorandum approach. but now we need to recognize the conversion option in the accounts and financial statements.
              Based on my book and my understanding:
              Dr. Cash 10.8million
              Discount on bonds payable 1.5million (10-8.5)
              Cr. Bonds payable 10 million
              Common shares conversion rights 2.3million (10.8-8.5)
            • so continue on, for the second one g/l entry -linpine(linpine); 2007-2-14 {502} (#497@41)
              referring to the first one:
              Dr. Cash 10.8million
              Discount on bonds payable 1.5million (10-8.5)
              Cr. Bonds payable 10 million
              Common shares conversion rights 2.3million (10.8-8.5)

              second one came up:
              Dr. Bonds payable 3million (30% of 10 million)
              Common stock conversion rights 690,000 (2.3million*30%)
              Cr. Discount on bonds payable 405,000 (1.5million*18/20)*30%
              Common shares 3,285,000 (plug in amount)

              As this is using book value method, market value in this case is irrelevant.
              • You're absolutely right. I appreciat your time. -armani7(.); 2007-2-15 {31} (#519@41)
                Happy Valentine's Day ~~ : )
    • up~ 我怀疑有种产后遗忘症. :S -armani7(.); 2007-2-13 (#459@41)

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