On January 1, 2020, Blossom Ltd. issued 820 5-year, 11% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6. Similar straight bonds carry an interest rate of 13%. Calculate the PV of the debt component by itself. Calculate using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function PV. QUESTION: 1) PV of the debt component 2) How should Blossom record the issuance if it follows IFRS? Use the amount you arrived at in part (a) using a financial calculator or Excel. Date Account Titles and Explanation January 1 enter an account title enter an account title January 1 enter an account title Date Account Titles and Explanation enter an account title Debit 3) How should Blossom record the issuance if it follows ASPE? enter an account title enter a debit amount enter a credit amount Credit enter a debit amount enter a credit amount enter a debit amount enter a credit amount Debit Credit enter a debit amount enter a credit amount enter a debit amount enter a credit amount

On January 1, 2020, Blossom Ltd. issued 820 5-year, 11% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6. Similar straight bonds carry an interest rate of 13%. Calculate the PV of the debt component by itself. Calculate using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function PV. QUESTION: 1) PV of the debt component 2) How should Blossom record the issuance if it follows IFRS? Use the amount you arrived at in part (a) using a financial calculator or Excel. Date Account Titles and Explanation January 1 enter an account title enter an account title January 1 enter an account title Date Account Titles and Explanation enter an account title Debit 3) How should Blossom record the issuance if it follows ASPE? enter an account title enter a debit amount enter a credit amount Credit enter a debit amount enter a credit amount enter a debit amount enter a credit amount Debit Credit enter a debit amount enter a credit amount enter a debit amount enter a credit amount

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 10QE

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
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