On January 1, 2019, XYC Company issued P6,000,000 of its 8%, 6 year bonds at P110. Interest is payable every June 30 and December 31. Each P1,000 bond is convertible into 5 ordinary shares of P100 par value. The prevailing market rate of interest for similar debt without the conversion option is 10%. On January 1, 2021, one-third of the bonds were retired for P2,100,000. On this date, the market price of the share was P120 and the prevailing rate of interest on similar debt instrument was 9% without the conversion option. On July 1, 2021, one-half of the remaining holders of the convertible bonds exercised their conversion privilege. On this date, the market price of the share was P140 and the prevailing rate of interest on similar debt instrument was 8% without the conversion option. 1. How much is the equity component arising from the bond issuance? 2. How much is the gain (loss) on the retirement? 3. How much is the net increase (decrease) in the total shareholder' equity as a result of the conversion? 4. How much is the interest expense for the year ended December 31, 2021? 5. How much is the carrying amount of the bonds payable as of December 31, 2021? 6. Prepare the pertinent journal entries on the convertible bonds.
On January 1, 2019, XYC Company issued P6,000,000 of its 8%, 6 year bonds at P110. Interest is payable every June 30 and December 31. Each P1,000 bond is convertible into 5 ordinary shares of P100 par value. The prevailing market rate of interest for similar debt without the conversion option is 10%. On January 1, 2021, one-third of the bonds were retired for P2,100,000. On this date, the market price of the share was P120 and the prevailing rate of interest on similar debt instrument was 9% without the conversion option. On July 1, 2021, one-half of the remaining holders of the convertible bonds exercised their conversion privilege. On this date, the market price of the share was P140 and the prevailing rate of interest on similar debt instrument was 8% without the conversion option. 1. How much is the equity component arising from the bond issuance? 2. How much is the gain (loss) on the retirement? 3. How much is the net increase (decrease) in the total shareholder' equity as a result of the conversion? 4. How much is the interest expense for the year ended December 31, 2021? 5. How much is the carrying amount of the bonds payable as of December 31, 2021? 6. Prepare the pertinent journal entries on the convertible bonds.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 7P: Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued...
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Transcribed Image Text:2:36
On January 1, 2019, XYC Company issued P6,000,000 of its 8%, 6 year bonds at P110.
Interest is payable every June 30 and December 31. Each P1,000 bond is convertible
into 5 ordinary shares of P100 par value. The prevailing market rate of interest for
similar debt without the conversion option is 10%.
On January 1, 2021, one-third of the bonds were retired for P2,100,000. On this date,
the market price of the share was P120 and the prevailing rate of interest on similar
debt instrument was 9% without the conversion option.
On July 1, 2021, one-half of the remaining holders of the convertible bonds exercised
their conversion privilege. On this date, the market price of the share was P140 and the
prevailing rate of interest on similar debt instrument was 8% without the conversion
option.
1. How much is the equity component arising from the bond issuance?
2. How much is the gain (loss) on the retirement?
3. How much is the net increase (decrease) in the total shareholder' equity as a result
of the conversion?
4. How much is the interest expense for the year ended December 31, 2021?
5. How much is the carrying amount of the bonds payable as of December 31, 2021?
6. Prepare the pertinent journal entries on the convertible bonds.
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