Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as itwould meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion optionare not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that thebond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon thepurchase of his security.?Dr. Debt security-tradingDr. Derivative financial instrumentCr. CashDr. Debt security-tradingCr. CashDr. Debt security-tradingDr. Derivative Financial InstrumentCr. CashCr. Other Comprehensive IncomeDr. Debt security-tradingDr. Additional Paid-in CapitalCr. Cash$6,750,000$750,000$7,500,000$ 7,500,000$7,500,000$7,500,000$750,000$7,500,000$750,000$6,750,000$750,000$7,500,000

Dr. Debt security-trading $6,750,000Dr. Derivative financial instrument $750,000Cr. Cash…

Answered: Company XYX buys a convertible bond for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Choose the correct answer 1.)Maroa Corporation entered into two derivatives contracts. The first is a contract to buy P5,000,000 face value bonds at P4,600,000. On the agreed date, the bonds were trading at P4,800,000. The second is a contract to sell 100,000 shares at a total price of P3,000,000. The shares were trading at P3,400,000 on the agreed date. The total gain or (loss) from the derivatives is A.)P600,000 B.)P200,000 C.)(P200,000) D.)(P600,000) 2.)Kris Corporation has the option to sell its investment in Joshua bonds at P4,500,000. It can exercise the option every third Wednesday of the next three months. The contract is a/an A.)European call option B.)American put option c.)Asian call option D.)Bermuda put option 3.)In the long run, the Central Bank can affect A.) inflation. B.) output. C.) unemployment. D.) the exchange rate
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 6. Can the market price be less than the conversion value? 7. How much is the convertible holder paying for the option to buy one share of common stock? 8. By how much does the common have to rise after three years to justify conversion? please explain in full detail. Thank you.
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. In the absence of the conversion feature, what is the current yield and yield to maturity? What is the conversion ratio of the debenture? If the conversion ratio were 50, what would be the conversion price? What is the conversion value? At what stock price is the conversion value equal to the bond value? Can the market price be less than the conversion value? How much is the convertible holder paying for the option to buy one share of common stock? . By how much does the common have to rise after three years to justify conversion? please explain in full detail.Thank you.
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 7. By how much does the common have to rise after three years to justify conversion? This is the third part of my first submitted questions. please explain in full detail. Thank you.
Choose the best answer 1.) Moa entered into a contract to trade-off its 7% interest payable for Nia T-bond plus 3% interest rate payable. From ABC’s perspective, this contract is a 2.) A contract to sell a bond investment. Entities can buy the contract through an exchange. a.)Long forward contract b.)Variable-to-fixed interest rate swap c.)Short forward contract d.)Currency swap e.)Long futures contract f.)Fixed-to-variable interest rate swap g.)Short futures contract
Concord Corp. issued $10000000 of par value 8% convertible bonds at 98. If thr bonds had not been convertible, the company's investment banker estimates they would have been sold at 93. Concord Corp. has adopted ASPE, and would like to explore all option available to report the convertible bond.Option 1: Residual MethodOption 2: Value equity component at zero.
Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversionratio?
Considera put contract onaT bondwith an exercise price of $101 16/32. The contract represents $1,000,000 of bond principal and had a premium of $750. The actual T bond price falls to $95 16/32 at expiration. What is the gain or loss on the position?
Which of the following statements is CORRECT? O a. The NYSE is an example of an over-the-counter market. O b. Only institutions, and not individuals, can engage in derivative market transactions. O c. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction. O d. As they are generally defined, money market transactions involve debt securities with maturities of less than one year. e. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
CMOS Chips is hedging a 20-year, $10 million, 7% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 7% fixed interest rate on a notional amount of $10 million and to pay interest based on a floating interest rate tied to LIBOR. The contract calls for cash settlement of the net interest amount on December 31 of each year. At December 31, 2016, the fair value of the derivative and of the hedged bonds has increased by $100,000 because interest rates declined during the reporting period. Required: 1. Does CMOS have an unrealized gain or loss on the derivative for the period? On the bonds? Will earnings increase or decrease due to the hedging arrangement? Why? 2. Suppose interest rates increased, rather than decreased, causing the fair value of both the derivative and of the hedged bonds to decrease by $100,000. Would CMOS have an unrealized gain or loss on the derivative for the…
ABC Corporation bought a put option on XYZ Corp. P5,000,000-face value bonds for a premium of P25,000. The strike price is P5,100,000. 1. If on the exercise date of the option, the bonds were selling at P5,060,000, how much is the net gain/(loss) based on the information above? 2. If on the exercise date of the option, the bonds were selling at P5,200,000, how much is the net gain/(loss) based on the information above?
Maple Aircraft has issued a 4¾% convertible subordinated debenture due 3 years from now. The conversion price is $47 and the debenture is callable at 102.75% of face value. The market price of the convertible is 91% of face value, and the price of the common is $41.50. Assume that the value of the bond in the absence of a conversion feature is about 65% of face value. 4. At what stock price is the conversion value equal to the bond value? 5. Can the market price be less than the conversion value? 6. How much is the convertible holder paying for the option to buy one share of common stock? 7. By how much does the common have to rise after three years to justify conversion? This is the second part of my first submitted questions. please explain in full detail. Thank you.

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS