Discuss the propriety of the preceding accounting treatment.

Gun control an effective way to control crime
July 6, 2020
PLAGIARISm Utilizing the information on academic dishonesty located in the AState Student Handbook, essay help
July 6, 2020

Recording Convertible Debt – Zakin Co. recently issued $1,000,000 face value, 10%, 30-year subordinated debentures at 97. The debentures are redeemable at 103 upon demand by the issuer at any date upon 30 days notice 10 years after the issue. The debentures are convertible into $10 par value common stock of the Company at the conversion price of $12.50 per share for each $500 or multiple thereof of the principal amount of the debentures.

Required

1. Explain how the conversion feature of convertible debt has a value to the:

a. Issuer

b. Purchaser

2. Management of Zakin Co. has suggested that in recording the issuance of the debentures, it should assign a portion of the proceeds to the conversion feature.

a. What are the arguments for according separate accounting recognition to the conversion feature of the debentures?

b. What are the arguments supporting accounting for the convertible debentures as a single element?

3. Assume that the company assigns no value to the conversion feature upon issue of the debentures. Assume further that five years after issue, debentures with a face value of $100,000 and book value of $97,500 are tendered for conversion on an interest payment date when the market price of the debentures is 104 and the common stock is selling at $14 per share and that the Company records the conversion as follows:

Bonds Payable

100,000

Bond Discount

2,500

Common Stock

80,000

Premium on

Common Stock

17,500

Discuss the propriety of the preceding accounting treatment.

 

Submit Your Assignment and get professional help from our qualified experts!


Discuss the propriety of the preceding accounting treatment. was first posted on July 6, 2020 at 1:53 am.
©2019 "Submit Your Assignment". Use of this feed is for personal non-commercial use only. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. Please contact me at support@payfordissertation.com

 

"Are you looking for this answer? We can Help click Order Now"

Law Writers