On 1 April 2020, an 8% convertible loan with a nominal value of P600,000 was issued at par. It is redeemable on 31 March 2024 also at par. Alternatively it may be converted into equity shares on the basis of 100 new shares for each P200 worth of loan note. An equivalent loan note without the conversion option would have carried interest at 10%. Interest of P48,000 has already been paid and included as a finance cost. Prepare all the necessary entries related to the loan.

On 1 April 2020, an 8% convertible loan with a nominal value of P600,000 was issued at par. It is redeemable on 31 March 2024 also at par. Alternatively it may be converted into equity shares on the basis of 100 new shares for each P200 worth of loan note. An equivalent loan note without the conversion option would have carried interest at 10%. Interest of P48,000 has already been paid and included as a finance cost. Prepare all the necessary entries related to the loan.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

On 1 July 2023 Tamasek Ltd issues convertible notes with a face value of $10 million. The convertible notes have a 20-year term and mature on 30 June 2043. Interest is payable semi-annually in arrears, i.e. on 31 December and 30 June each year, and the coupon rate of interest is 7.5% p.a., At around the same point in time, companies with a similar credit rating issue debt securities without a conversion option with a coupon rate of 10% p.a., payable semi-annually. Required: Determine the debt and equity components of the convertible notes issued using the residual valuation method. Prepare the entries of Tamasek Ltd to account for the convertible notes over the period 1 July 2023 to 30 June 2025.
Gerald issued 9% K35 million convertible loan note on 1 April 2015 at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2018 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each K100 of loan. A similar instrument without the conversion option would have interest rate of 10% per annum. The present value of K1 receivable at the end of each year based on discount rates of 10% are; end of year 10% 1 0.91 2 0.83 3 0.75 cumulative 2.49 Explain the accounting treatment of the above instrument
B) WN ltd issued a GH₵ 40 million 15% convertible loan note at a par on 1 January 2010 with interest payable annually in arrears. Three years later, on 31 December 2012, the loan note is convertible into equity shares on the basis of GH₵ 100 of loan note for 50 equity shares or it may be redeemed at par in cash at the option of the loan note holder. WN financial Accountant has observed that the use of a convertible loan note was preferable to a non-convertible loan note as the latter would have required an interest rate of 20% in order to make it attractive to investors. The Accountant has also commented that the use of a convertible loan note will improve the profit as a result of lower interest costs and, as it is likely that the loan note holders will choose the equity option, the loan note can be classified as equity which will improve the company’s high gearing position The present value of GH₵ 1 received at the end of the year, based on the discount rate of 15% and 20% can be…
Bertrand issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon)rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged forequity shares in Bertrand on the basis of 20 shares for each $100 of loan. A similar loan note, without theconversion option, would have required Bertrand to pay an interest rate of 8%.What is the amount that willbe recognised as
On Jan. 1, 2021, both ABC Corporation and its subsidiary Alpha Corporation would require loans of P10,000,000 due in 5 years time. ABC prefers a variable interest rate while Alpha prefers a fixed interest rate, but both are open to an interest rate swap. ABC's bank offered (a) 8% or (b) treasury bond rate plus 6%. Alpha's bank offered (a) 10% or (b) treasury bond rate plus 7%. If an interest rate swap was agreed, how much would one pay while the other receive annually with regard to this swap arrangement?
On January 1, 2020, MANGO Corp. issues $100 million of convertible bonds at par value. The bonds have a stated annualinterest rate of 4%, pay interest semiannually, and come due December 31, 2024. The bonds are convertible at any time after issuance at the rate of 25 shares of common stock for each $1,000 of the face value of the convertible bonds. Issuance costs total $300,000. The current annual market interest rate for non-convertible bonds with similar maturity is 6%.Required:1 -Prepare the journal entries to record the issuance of the convertible bonds (round to the nearest dollar). 2 -Determine the amount of expense related to the convertible bonds that the company should recognize each year (round to the nearest dollar)and prepare the journal entries for the first year only.
Pacific Filght PLC has in issue K500,000 10% irredeemable debentures. Investors currently require 8% return per annum. What will be the market value of the debt?
A $1000, 6.5% coupon, 20-year Government of Canada bond was issued on Jun 15, 2016. At what price did it trade on December 10, 2020, when the market's required return was 5.2% compounded semiannually? The textbooks answer is $1,168.86.
On December 31, 2021, Extract Company issued a P40,000,000 5-year of P1 per value each at an issue price of P0.90 per unit. The bond carries a coupon interest of 6% and interest is payable on December 31 each year. Cost of issuing the bond, which included underwriting fees, totalled P2,000,000. The prevailing market rate interest for similar risk class bonds on December 31, 2021 was 10%. Question 1. What is the initial carrying value of the bond on December 31, 2021 assuming Extract Company has the policy to measure the bond at fair value to profit or loss?Question 2. What is the initial carrying value of the bond on December 31, 2021 assuming Extract Company has the policy to measure the bond at amortized cost model?
Debussy Ltd issues 3,000 convertible bonds at the start of 2020. The bonds have a four-year term and are issued at par with a face value of $1,000 per bond, giving total proceeds of $3,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 7%. Each bond is convertible at any time up to maturity into 300 ordinary shares. When the bonds are issued, the prevailing market interest rate for similar debt without conversion options is 10%. Round your answer to the nearest dollar. Required: Determine the amount for the liability and equity components of the convertible notes. Show your workings. The present value factors relevant for the calculation are as followed: 4-year discount factor: Simple Cumulative 7% 0.763 3.387 10% 0.683 3.170 ANSWER HERE:
A firm issues 4% convertible loan notes that are redeemable in 4 years’ time at a per-note nominal value of £100. Each loan note could alternatively be converted into 15 ordinary shares in 4 years’ time. The cost of debt is 6%. The current share price is £6.20 per share, and future share price growth is expected to be 4% per year. What is the current market value of a convertible loan note to two decimal places?
On 1 july 2018 BMw ltd issues $2 million in 10 year debentures that pay interest each six months at a coupon rate of 10 percent. At the time of issuing the securities, the market requires a rate of return of 12 %. Interest expense is determined using the effective interest method. Formula for PV of $1 in n periods = [1/1-(1+k)n/ k Formula for present value of annuity of $1 per period for n periods =[ 1-1/(1+k)n] / k where k is the discount rate expressed in decimal Required 1. Determine the issue price of the debenture 2. Provide the journal entries at 1 July 2018 and 30 June 2019