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    IA2 Chapter 7 Activities

    Uploaded by

    Shaina Torraine
    The document contains several problems related to accounting for bonds payable with premiums, discounts, warrants, and conversion features. Key details include: - Problem 7-1 allocates the proceeds from a bond issued at a premium between the liability component and a warrant component. - Problem 7-2 allocates proceeds between a bond issued at a discount and warrant. - Problem 7-3 shows the amortization of premium on a bond payable over its term through semi-annual interest payments. The problems calculate accounting entries over time for interest expense, premium/discount amortization, and debt conversions/redemptions.

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    IA2 Chapter 7 Activities

    Uploaded by

    Shaina Torraine
    78 views5 pages
    The document contains several problems related to accounting for bonds payable with premiums, discounts, warrants, and conversion features. Key details include: - Problem 7-1 allocates the proceeds from a bond issued at a premium between the liability component and a warrant component. - Problem 7-2 allocates proceeds between a bond issued at a discount and warrant. - Problem 7-3 shows the amortization of premium on a bond payable over its term through semi-annual interest payments. The problems calculate accounting entries over time for interest expense, premium/discount amortization, and debt conversions/redemptions.

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    The document contains several problems related to accounting for bonds payable with premiums, discounts, warrants, and conversion features. Key details include: - Problem 7-1 allocates the proceeds from a bond issued at a premium between the liability component and a warrant component. - Problem 7-2 allocates proceeds between a bond issued at a discount and warrant. - Problem 7-3 shows the amortization of premium on a bond payable over its term through semi-annual interest payments. The problems calculate accounting entries over time for interest expense, premium/discount amortization, and debt conversions/redemptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    78 views5 pages

    IA2 Chapter 7 Activities

    Uploaded by

    Shaina Torraine
    The document contains several problems related to accounting for bonds payable with premiums, discounts, warrants, and conversion features. Key details include: - Problem 7-1 allocates the proceeds from a bond issued at a premium between the liability component and a warrant component. - Problem 7-2 allocates proceeds between a bond issued at a discount and warrant. - Problem 7-3 shows the amortization of premium on a bond payable over its term through semi-annual interest payments. The problems calculate accounting entries over time for interest expense, premium/discount amortization, and debt conversions/redemptions.

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    You are on page 1of 5

    Problem 7-1

    Jan-01 Cash 6,000,000


    Bond Payable 5,000,000
    Premium 735,000
    Share Warrant Outstanding 265,000

    Issue price of bonds with warrants 6,000,000


    Market Value of bond without warrants 5,735,000
    Residual Amount Allocated to Warrants 265,000

    Dec-31 Interest Expense 400,000


    Cash 400,000

    Premium 55,900
    Interest Expense 55,900

    Cash 600,000
    Share Warrants Outstanding 265,000
    Share Capital 500,000
    Share Premium 365,000

    Problem 7-2
    Jan-01 Cash 5,100,000
    Discount 343,000
    Bond Payable 5,000,000
    Share Warrant Outstanding 443,000

    Dec-31 Interest Expense 651,980


    Cash 600,000
    Discount 51,980

    Cash 2,500,000
    Share Warrants Outstanding 443,000
    Share Capital 1,250,000
    Share Premium 1,693,000

    Problem 7-3
    Principal 8,000,000
    Normal Rate 12% 6%
    Effective Rate 10% 5%
    Maturity Date - Principal 8,000,000
    Period 5 years 10 Interest 480,000
    Payable Semi-annually June 30 and December 31

    Date Interest Payment Interest ExpenseAmortization Carrying Amount


    01/01/20x1 8,585,600
    06/30/20x1 480,000 429,280 50,720 8,534,880
    12/31/20x1 480,000 426,744 53,256 8,481,624
    Jan-01 Cash 9,600,000
    Bond Payable 8,000,000
    Premium 585,600
    Share Warrant Outstanding 1,014,400

    Jun-30 Interest Expense 429,280


    Premium 50,720
    Cash 480,000

    Dec-31 Interest Expense 426,744


    Premium 50,720
    Cash 480,000

    Cash 2,400,000
    Share Warrants Outstanding 1,014,400
    Share Capital 1,600,000
    Share Premium 1,814,400

    Problem 7-8
    PV of Principal 2,000,000 1 1,540,000
    PV of Interest 120,000 3 303,600
    Total Present Value 1,843,600

    Discount on Bonds 2,000,000 1,843,600 156,400

    Jan-01 Cash 2,200,000


    Discount 156,400
    Bond Payable 2,000,000
    Share Premium - conversion 356,400

    Interest Expense 165,924


    Cash 120,000
    Discount 45,924

    Dec-31 Bond Payable 2,000,000


    Share Premium - conversion 356,400
    Discount 110,476
    Share Capital 1,000,000
    Share Premium - Issuance 1,245,924

    Problem 7-5
    Cash 5,250,000
    Discount 300,000
    Bond Payable 5,000,000
    Share Premium - conversion 550,000

    Interest Expense 658,000


    Discount 58,000
    Cash 600,000

    Bond Payable 5,000,000


    Discount 242,000
    Share Premium - conversion 550,000
    Total Consideration 5,308,000
    Par Value of Share Capital Issued 4,000,000
    Share Premium Issuance 1,308,000

    Bond Payable 5,000,000


    Share Premium - Conversion 550,000
    Discount 242,000
    Share Capital 4,000,000
    Share premium - Issuance 1,308,000

    Problem 7-6
    Bond Payable 5,000,000
    Share Premium - conversion 500,000
    Premium 250,000
    Share Capital 2,500,000
    Share Premium 3,250,000

    Share Premium - Issuance 200,000


    Cash 200,000

    Problem 7-7
    PV of Principal 4,000,000 1 3,160,000
    PV of Interest 240,000 3 619,200
    Total Present Value 3,779,200

    Discount on Bonds 4,000,000 3,779,200 220,800

    Issue price of bonds with warrants 4,200,000


    Market Value of bond without warrants 3,779,200
    Residual Amount Allocated to Warrants 420,800

    Cash 4,200,000
    Discount 220,800
    Bond Payable 4,000,000
    Share Premium - Conversion 420,800

    Bonds Payable 4,000,000


    Interest Expense 240,000
    Cash 4,240,000

    Share Premium - Conversion 420,800


    Share Premium - Issuance 420,800
    Problem 7-8
    FV w/ conversion privilege 5,550,000
    FV w/o conversion privilege 5,400,000
    EFV of equity Component 150,000

    Carrying Amount 5,178,000


    Payment equal to FV w/o CP 5,400,000
    Loss on Extinguishment 222,000

    Req 1 Cash 6,000,000


    Bond Payable 5,000,000
    Premium 399,300
    Share Premium - Conversion 600,700

    Req 2 Bond Payable 5,000,000


    Premium 178,000
    Share Premium 150,000
    Loss on Extinguishment 222,000
    Cash 5,550,000

    Interest Expense 500,000


    Cash 500,000

    Share Premium - Conversion 450,700


    Share Premium - Issuance 450,700
    Present Value
    0.61 4,880,000
    7.72 3,705,600
    8,585,600

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