On January 1, 20x1, Julius Company issued a three-year, 5,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder’s option, into 200, P2 par value ordinary shares at any time up to maturity. On the date of issuance, the prevailing market interest rate for similar debt without conversion privilege was 9%. On the same date, the market price of one (1) ordinary share was P3. The bonds were converted on December 31, 20x2. REQUIRED: Compute the following: 1. The liability component of the convertible debt _____________ 2. Interest expense for the year ended December 31, 20x2 _____________ 3. Share premium from issuance of ordinary shares _____________
On January 1, 20x1, Julius Company issued a three-year, 5,000 convertible bonds at face value of P1,000
per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible,
at the holder’s option, into 200, P2 par value ordinary shares at any time up to maturity. On the date of
issuance, the prevailing market interest rate for similar debt without conversion privilege was 9%. On the
same date, the market price of one (1) ordinary share was P3. The bonds were converted on December
31, 20x2.
REQUIRED: Compute the following:
1. The liability component of the convertible debt _____________
2. Interest expense for the year ended December 31, 20x2 _____________
3. Share premium from issuance of ordinary shares _____________
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