Accounting For Proceeds From The Issuance Of Convertible Bonds And Of Debt Instruments With Separate Warrants

Debt securities included under this topic include any investment that would be considered a loan to a company, municipality or the government and its agencies. These include corporate or municipal bonds and U.S. Treasury securities and other instruments expressly stated within the codification. Equity securities covered under this section must have an easily attainable market value and include corporate stock, U.S. Treasury securities, and business investments greater than 20%. In this case, the code will dictate the method of accounting to be used as well as financial statement presentation. (GAAP) (FASB ASC 320-10-05-2, 2016).

Securities are confirmation of either debt or ownership. They are also confirmation of related rights. Securities include not only options and warrants, but also debt and stock. (FASB ASC 505-10-50-6) Participation rights are the promised rights of the security holders. This ensures that they will receive dividends or returns from the issuing company’s profits, cash flows, or returns on investments. (FASB ASC 505-10-50-3) Preferred stock are a security that gives preference to the holder over those who hold common stock. (FASB ASC

A convertible bond is a bond that can be converted into a pre-determined number of shares of stock. This would happen during the life of the bond. The number of shares it can be converted to is determined by the issuer of the bond, the corporation. Convertible bonds are an attractive investment. They offer the for potential market appreciation like an equity. They also offer the conservative nature and safety of a bond. A convertible bond pays you interest and gives you the option to convert it to shares of stock.

Along with market performance, a firm may need to adapt its financial activities as well. These activities all relate to the way the firm is organized, in particular, its capital structure. Included in capital structure is the aspect of convertible bonds. These bonds can be converted to a specified amount of common stock. The downside of these convertible stocks and bonds is that they have the potential of diluting the Earnings Per Share (EPS)

As the title suggests, warrants are issued by companies as an alternative way to raise funds or in combination with common stock during an Initial Public Offer (IPO). It allows high growth companies to raise much needed funds if they experience cash flow difficulties during this period of the company’s lifecycle. In addition to issuing common stock to raise funds, companies who issue warrants can attract more investors and provide more benefits to the investor and the company itself.

7-1 “Debt includes all borrowing incurred by a firm, including bonds, and is repaid according to a fixed schedule of payments and Equity consists of funds provided by firm’s owners, and the stock(pg272).”

This Ppractice Nnote addresses three types of alternatives for a company to raise debt for its business purposes: (1) syndicated loan borrowings, (2) debt securities issuances, and (3) mezzanine loan borrowings. This Npractice note will describes the basic features and differences between the alternatives.

We are pleased to present to you the salient features of our proposed $5B convertible debt offering for your careful review and approval. We deemed it appropriate to walk you through the analytical process in coming up with the right mix of conversion premium and coupon rate. We initially consider a conversion premium of 25% and determine its corresponding coupon rate. We then explore the appropriateness of such a premium and explore other conversion premium-coupon rate combinations and determine which combination would be optimal for

As indicated earlier, the method of recording the issuance of convertible bonds follows that used in recording straight debt issues. Specifically this means that issuing companies should not attribute any portion of the proceeds to the conversion feature, nor should it credit a paid-in capital account.

Convertible preferred stock - is exchanged at the request of the shareholder, but sometimes there is a provision

Miller and Modigliani’s second proposition focuses on the risks associated when a firm takes on more debt. “The expected yield of a share of stock is equal to the appropriate capitalization rate pk for a pure equity steam in the class, plus a

Included are several types of long-term liabilities; bonds payable, notes payable, and capital leases. Each of these types of debts have some similarities and some differences regarding the reporting and disclosure requirements, so to better understand those requirements and ensure proper application of requirements, an

An arrangement may also involve debenture holders being given an extension of time for payment, releasing their security in whole or in part or exchanging their debentures for the claims and the balance in shares or debenture of the company; preference shareholders giving up their rights to arrears of debenture of the company; preference shareholders giving up their rights to arrears of the dividends, further agreeing to accept a reduces rate of dividend in the future,

As a creditor (lender), between bondholder and stockholder, bondholder have the priority to receive the rendered in advance of stockholders but they have secure creditor when the company is facing bankruptcy. The significant difference between bonds and stock is bonds normally have a defined term, will redeemed after maturity date, however stocks can last long for many year until the company have opposed to liquidation.

Convertible debt is a form of security, which in most cases issued to start-ups at the time of raising capital. The seed investor is given a promissory note that contains a conversion feature (Kimmel & Weygandt 2007). The conversion feature contains a mechanism in which the debt can be converted into equity at a later date. There are several instances when the debt issued to a company by an investor can be converted into equity. Some of them include;