Angela Corporation issues 1,500 convertible bonds at January 1, 2013. The bonds
ID: 2470972 • Letter: A
Question
Angela Corporation issues 1,500 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $1,500,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 7%.
Compute the liability and equity component of the convertible bond on January 1, 2013. (Round answers to 0 decimal places, e.g. 5,725.)
Prepare the journal entry to record the issuance of the convertible bond on January 1, 2013. (Round answers to 0 decimal places, e.g. 5,725. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Explanation / Answer
Solution:
Journal Entry to issue the bonds -
Journal Debit Credit Cash - 1,500 shares * $ 1,000 1,500,000 Bonds Payable 1,500 shares * $ 1,000 1,500,000