PROBLEM 1 (C7)
Cash 6,000,000
Bonds payable 5,000,000
Premium on bonds payable 735,000
Share warrants outstanding 265,000
Issue price with warrant (5,000,000 x 120%) 6,000,000
Market price of bonds without the warrant (5,000,000 x 114.7%) -5,735,000
Equity component 265,000
Market price of bonds without the warrant (5,000,000 x 114.7%) 5,735,000
Face amount of the bonds -5,000,000
Premium on bonds payable 735,000
Interest expense 400,000
Cash 400,000
Premium on bonds payable [(5,735,000 x 6%) - 400,000] 55,900
Interest expense 55,900
Cash (5,000 warrants x 4 shares x 30/share) 600,000
Share warrants outstanding 265,000
Share capital (5,000 warrants x 4 shares x 25/share) 500,000
Share premium - issuance 365,000
PROBLEM 2 (C7)
January 1 Cash 5,100,000
Discount on bonds payable 343,000
Bonds payable 5,000,000
Share warrants outstanding 443,000
December 31 Interest expense (5,000,000 x 12%) 600,000
Cash 600,000
Interest expense 51,980
Discount on bonds payable 51,980
Interest paid 600,000
Interest expense (14% x 4,657,000) -651,980
Discount amortization 51,980
Cash (25,000 x 100) 2,500,000
Share warrants outstanding 443,000
Share capital (25,000 x 50) 1,250,000
Share premium 1,693,000
PROBLEM 3 (C7)
1. Cash 5,250,000
Discount on bonds payable 300,000
Bonds payable 5,000,000
Share premium - conversion privilege 550,000
Issue price with conversion privilege (5,000,000 x 105%) 5,250,000
Market price of bonds without the conversion privilege -4,700,000
Equity component (share warrants outstanding 550,000
Face amount of the bonds 5,000,000
Market price of bonds without the conversion privilege -4,700,000
Discount on bonds payable 300,000
2. Interest expense (4,700,000 x 14%) 658,000
Discount on bonds payable (658,000 - 600,000) 58,000
Cash ( 5,000,000 x 12%) 600,000
3. Bonds payable 5,000,000
Share premium - conversion privilege 550,000
Discount on bonds payable 242,000
Share capital 4,000,000
Share premium - issuance 1,308,000
Bonds payable 5,000,000
Discount on bonds payable (300,000 - 58,000) -242,000
Carrying amount of bonds without the privilege 4,758,000
Share premium - conversion privilege 550,000
Total consideration for the conversion 5,308,000
Share capital issued (5,000 bonds x 8 shares 100 per value) - 4,000,000
Share premium - issuance 1,308,000
PROBLEM 4 (C7)
1. Cash 4,200,000
Discount on bonds payable (4,000,000 - 3,779,200) 220,800
Bonds payable 4,000,000
Share premium - conversion option 420,800
2. Bonds payable 4,000,000
Interest expense (4,000,000 x
6%) 240,000
Cash 4,240,000
Share premium - conversion
option 420,800
Share premium - issuance 420,800
PV of Principal (4,000,000 x
0.79) 3,160,000
PV of Interest payments (4,000,000 x 6% x
2.58) 619,200
Total Present
Value 3,779,200
Issue price of bonds with conversion option 4,200,000
PV of bonds payable -3,779,200
Residual amount allocated to conversion
option 420,800
PROBLEM 5 (C7)
1. Cash 6,000,000
Bonds payable 5,000,000
Premium on bonds payable 399,300
Share premium - conversion privilege 600,700
Issue price with conversion privilege 6,000,000
Market price of bonds without the conversion privilege -5,399,300
Equity component (share warrants outstanding 600,700
Market price of bonds without the conversion privilege 5,399,300
Face amount of the bonds -5,000,000
Premium on bonds payable 399,300
2. Interest expense 426,500
Premium on bonds payable 73,500
Cash 500,000
Bonds payable 5,000,000
Premium on bonds payable 178,300
Share premium - conversion privilege 150,000
Loss on extinguishment of debt 221,700
Cash 5,550,000
Total payment 5,550,000
Payment applicable to bonds payable -5,400,000
Payment attributable to the equity component 150,000
Payment applicable to bonds payable 5,400,000
Carrying amount of the bonds payable at the time of payment -5,178,300
Loss on extinguishment of debt 221,700
Share premium conversion privilege 450,700
Share premium - unexercised conversion privilege 450,700
