On January 1, 2020, Fruits Company issued its 8%, 5-year convertible debt instruments with a face amount of P8,000,000 for P7,700,000. Interest is payable every December 31, of each year. The debt instrument is convertible into 50,000 ordinary shares with a par value of P100. When the debt instruments were issued, the prevailing market rate of interest for similar debt without conversion privilege is 10%. On December 31, 2022, all the convertible debt instruments were retired for P8,000,000. The prevailing rate of interest on a similar debt instruments on December 31, 2022 is 9% without conversion privilege. What is the carrying value of the debt instruments as of December 31, 2022?

On January 1, 2020, Fruits Company issued its 8%, 5-year convertible debt instruments with a face amount of P8,000,000 for P7,700,000. Interest is payable every December 31, of each year. The debt instrument is convertible into 50,000 ordinary shares with a par value of P100. When the debt instruments were issued, the prevailing market rate of interest for similar debt without conversion privilege is 10%. On December 31, 2022, all the convertible debt instruments were retired for P8,000,000. The prevailing rate of interest on a similar debt instruments on December 31, 2022 is 9% without conversion privilege. What is the carrying value of the debt instruments as of December 31, 2022?

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 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.
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