Thus, the security is compound financial instrument. If the convertible debt is convertible at the investor’s option, the initial proceeds are divided between the debt element (both principal and interest) and the equity element, the conversion option.
7. If a convertible bond has a conversion price that is set in reference to the fair market value of shares on the conversion date, then the bond is classified entirely as debt. No (price) risk or reward is transferred to the investor and therefore there is no equity element.
8. When a convertible bond is converted, the common share conversion option account is transferred into the common stock account. If the bond is not converted, this account is still left in equity, but transferred to a different contributed capital account.
9. Interest expense, $76,400 x .08 = $6,112
Annual payment, $400,000 x .08 = $32,000
10. Stock options provide the holder with an option to acquire a specified number of shares in a corporation under prescribed conditions and within a stated future time period. Options that are issued as an attachment to other securities are called stock warrants. Warrants may trade separately while options do not. Options often have a limited life while warrants often have no expiry date.
11. A share-based payment to a supplier is measured based on the fair value of the goods or services rendered. In the rare