Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 14, Problem 14.16Q
Both convertible bonds and bonds issued with detachable warrants have features of both debt and equity. How does the accounting treatment differ for the two hybrid securities? Why is the accounting treatment different?
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Students have asked these similar questions
Which of the following is incorrect regarding a compound financial instrument?
a.)None of the other choices is incorrect.
b.)Convertible bonds and bonds with share warrants are examples of compound financial instruments.
c.)It is a financial instrument that from the debtor’s perspective, contains both a liability and an equity element.
d.)The buyer accounts for the elements of a compound financial instrument separately.
Why do convertible bonds and bonds with warrants have lowercoupons than similarly rated bonds that do not have these features?
Why would a company wish to reduce its bond indebtednessbefore its bonds reach maturity? Indicate how thiscan be done and the correct accounting treatment forsuch a transaction.
Chapter 14 Solutions
Intermediate Accounting, 10 Ed
Ch. 14 - How is periodic interest determined for...Ch. 14 - As a general rule, how should long-term...Ch. 14 - How are bonds and notes the same? How do they...Ch. 14 - What information is contained in a bond indenture?...Ch. 14 - How is the price determined for a bond (or bond...Ch. 14 - A zero-coupon bond pays no interest. Explain.Ch. 14 - Prob. 14.8QCh. 14 - Compare the two commonly used methods of...Ch. 14 - Prob. 14.10QCh. 14 - When a notes stated rate of interest is...
Ch. 14 - How does an installment note differ from a note...Ch. 14 - Prob. 14.13QCh. 14 - Prob. 14.14QCh. 14 - Air Supply issued 6 million of 9%, 10-year...Ch. 14 - Both convertible bonds and bonds issued with...Ch. 14 - Prob. 14.17QCh. 14 - Cordova Tools has bonds outstanding during a year...Ch. 14 - If a company prepares its financial statements...Ch. 14 - (Based on Appendix 14A) Why will bonds always sell...Ch. 14 - Prob. 14.21QCh. 14 - Prob. 14.22QCh. 14 - Prob. 14.23QCh. 14 - Bank loan; accrued interest LO132 On October 1,...Ch. 14 - Non-interest-bearing note; accrued interest LO132...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Determining the price of bonds LO142 A company...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Effective interest on bonds LO142 On January 1, a...Ch. 14 - Straight-line interest on bonds LO142 On January...Ch. 14 - Investment in bonds LO142 On January 1, a company...Ch. 14 - Note with unrealistic interest rate LO143 On...Ch. 14 - Installment note LO143 On January 1, a company...Ch. 14 - Prob. 14.12BECh. 14 - Bonds with detachable warrants LO145 Hoffman...Ch. 14 - Convertible bonds LO145 Hoffman Corporation...Ch. 14 - Prob. 14.22ECh. 14 - Prob. 14.36ECh. 14 - Prob. 14.14PCh. 14 - Prob. 14.17PCh. 14 - Prob. 14.21PCh. 14 - Prob. 14.3DMP
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- What is the difference between a bond and a note? How do the accounting treatments differ?arrow_forwardWhen bonds are redeemed before maturity, how is the gain or loss on redemption determined? Why does the calculation differ for bonds issued at face value, at a premium, and at a discount?arrow_forwardDescribe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.arrow_forward
- Explain the difference between subordinated debenture versus senior debt and also explain which one of these two types of bonds is riskier. A BI - at are the main differences between preferred and common shares?arrow_forward1. 2. What is meant by bond issue cost and how do we account for such bond? 3. How do we account for compound financial instruments? 4. What is the difference between convertible bonds and bonds with warrants? 5. What is the difference between the accounting for retirement of ordinary bonds and compound financial instruments?arrow_forwardExplain how convertible bonds and warrants are similar and different Explain your answer, please.arrow_forward
- When bonds are redeemed before maturity, how is the gain or loss onredemption determined? Why does the calculation differ for bondsissued at face value, at a premium, and at a discount?arrow_forwardConvertible debt and straight debt issued with warrants are similar securities, because both are debt securities that represent potential equity claims on the issuer's assets. In fact, convertible debt can be thought of as straight debt plus nondetachable warrants. However, several important distinctions do exist. Use the following table to indicate whether the characteristic listed refers to convertible bonds or to debt with warrants: Characteristic When exercised, the issuing firm receives new equity capital. When exercised, new claims on shareholders' equity are created, but no capital is transferred. These securities tend to have higher flotation costs. Convertible Bonds Debt with Warrants If a firm experiences rapid growth subsequent to convertible or bond-with-warrant issues, does that make it more or less likely that the securities will be converted or exercised? Less likely to be converted or exercised O More likely to be converted or exercisedarrow_forwardWhat are the reasons for issuing convertible bonds rather than straight debt?arrow_forward
- Is it possible for a given company to haveseveral different bonds outstanding that have different ratings? Explain.arrow_forwardWhy would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a tarrow_forwardWhat is the difference between convertible bonds and bonds with warrants?arrow_forward
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