At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of ₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000 bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value of the share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. Prepare journal entries for 2021.

At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of ₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000 bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value of the share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. Prepare journal entries for 2021.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

Evie Inc. issued 50 bonds with a $1,000 face value, a five-year life, and a stated annual coupon of 6% for $980 each. What is the total amount of interest expense over the life of the bonds?
On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________. A. $120,000 B. $60,000 C. $7,500 D. $15,000
Starmount Inc. sold bonds with a $50,000 face value, 12% interest, and 10-year term at $48,000. What is the total amount of interest expense over the life of the bonds?
At the beginning of the year, UNIVERSE Company decided to raise additional capital by issuing 8,000 of₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 andDecember 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value ofthe share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of theissuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similarbonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and therest expired. The following present value factors are made available: Prepare all entries for 2021.Compute or provide the answers for the following:26. What is the issue price of the bonds without warrants?27. What is the equity component upon initial recognition?28. How much is the premium or…
On January 1, 2021, Kat Company has decided to raise additional capital by issuing P5,000,000 face value, 5 year bonds with interest rate of 12% payable annually on December 31. To help the sale of the bonds, share warrants are issued – one warrant for each P1,000 bond sold. The warrant entitles the holder to purchase 5 shares at P100 per share. The par value of the share is P50. It is reliably determined that the value of the warrants is P30 each time of issuance of the bonds. The bonds are sold for P5,100,000 with warrants but would have sold only at P4,657,000 without warrants with 14% effective yield. On December 31, 2021, 60% of the share warrants were exercised and the remaining warrants expire on April 1, 2022. 1. The total share premium to be credited to share premium – issuance on December 31, 2021 is: 2. The carrying amount of the bonds as of December 31, 2022 is:
On January 1, 2021, Kat Company has decided to raise additional capital by issuing P5,000,000 face amount, 5 year bonds with interest rate of 12% payable annually on December 31. To help the sale of the bonds, share warrants are issued – one warrant for each P1,000 bond sold. The warrant entitles the holder to purchase 5 shares at P100 per share. The par value of the share is P50. It is reliably determined that the value of the warrants is P30 each time of issuance of the bonds. The bonds are sold for P5,100,000 with warrants but would have sold only at P4,657,000 without warrants with 14% effective yield. Required: Prepare journal entries for the current year in connection with the bonds including the exercise of the share warrants. The effective interest method of amortization is used.
On January 1, 2022, Iced Latte Corporation issued 5,000 10-year bonds of 12% P1,000 face value, each with warrants to acquire ordinary shares at P60 per share. The interest on the bonds is payable annually every December 31. Each bond contains one warrant which can be used to acquire 5 shares of P50 par value ordinary shares. It is estimated that without the warrants, the bonds would sell at 98 (at an effective interest of 12.36%) The bond price with warrants is 106. What amount is allocated to equity upon issuance of bonds?
On January 1, 2022, Iced Latte Corporation issued 5,000 10-year bonds of 12% P1,000 face value, each with warrants to acquire ordinary shares at P60 per share. The interest on the bonds is payable annually every December 31. Each bond contains one warrant which can be used to acquire 5 shares of P50 par value ordinary shares. It is estimated that without the warrants, the bonds would sell at 98 (at an effective interest of 12.36%) The bond price with warrants is 106. How much is the interest expense should Iced Latte Corporation reported in its Income statement for the year ended December 31, 2023?
During the year, Fabi Corporation issued 10,000 ordinary shares with P100 par value and 20,000 convertible preference shares with P200 par value for P8,000,000. On the date of issuance, the selling price of ordinary shares and preference shares are P360 and P270, respectively. In addition, the company issued 6% bonds with a maturity value of P6,000,000, together with 20,000 ordinary shares with P100 par value for a total amount of P11,000,000. The market value of the ordinary shares cannot be determined. If bonds were issued separately, the bonds would have sold for P5,000,000 on 8% yield to maturity basis. What amount should be reported as share premium from ordinary shares?
On January 1, 2020, Safety Company issued 10,000 P1,000 bonds with 10% stated interest payable every yearend for five years. Each bond carries rights to purchase 50 P10-par ordinary shares of Safety for P14 each. The market rate of interest ex-warrants is 12%.On December 29, 2021, some of the bondholders exercised their share warrants. When preparing the 2021 financial statements, however, the cash records were found to be included among those which were burnt from a firework incident during the New Year celebration.Upon inspection of your accounting clerk, he found the following recordings in the Shareholders' Equity.• The Share Capital increased by P3,000,000 as a result of the exercise of warrants.• The Share Premium - Issuance account increased by P1,392,720 as a result of the exercise of warrants.• The Share Warrants Outstanding account had a remaining balance of P128,480 after the exercise of warrants. a. How much is the net increase/decrease in the Shareholders' Equity during…
On January 1, ABC Company issued P1,000,000 face value bonds with warrants to purchase ordinary shares of ABC Company for P20 per share. Each P1,000 bond has a warrant which can be used to purchase 5 shares of P10 par value. The bonds pay 10% interest every December 31 and will mature on December 31, 2022. The bonds with the warrants were issued for 110 while the bonds without the warrants will only sell for 107. All of the warrants were exercised on December 31, 2020. What amount of share premium on the issuance of the shares as a result of the exercise of the warrants was recognized by ABC Company on December 31, 2020?
At the beginning of the current year, Moses Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000 bond was issued with 50 detachable share warrants each of which entitled the bondholder to purchase one ordinary share of P5 par value at P25. Immediately after issuance, the market value of each warrant was P5. The stated interest rate on the bonds is 11% payable annually every December 31. However, the prevailing market rate of interest for similar bonds without warrants is 2%. The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the initial carrying amount of the bonds payable? a. 5,450,000b. 4,830,000c. 5,000,000d. 4,380,000