M351_Notes-Day_16_Dilutive_and_EPS_1

M351_Notes-Day_16_Dilutive_and_EPS_1 - M351 Notes, Class...

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M351 Notes, Class 16: Dilutive Securities and EPS, pages 777-792 A. At isssuance Convertible Bonds are recorded as a straight debt instrument with all of the proceeds in debt accounts. For example, assume that ABC Company issues 2,000 bonds with a face value of $1,000 each at 101. The face interest rate on the bonds is 5% and interest is paid semiannually. Each $1,000 bond is convertible into 50 shares of $8 par value ABC common stock. ABC would make the following entry at issue : Cash (2,000 x $1,000 x 1.01). ............................... 2,020,000 Bonds payable (2,000 x $1,000). ................... 2,000,000 Premium on bonds payable. ........................... 20,000 Bond issue costs would be accounted for and amortized as described in Chapter 14. Assume that 60% of the bondholders present their bonds for converstion when the unamortized bond premium is $7 per $1,000 bond. Bonds payable (1,200 x $1,000). .......................... 1,200,000 Premium on bonds payable (1,200 x $7). .............
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This note was uploaded on 10/14/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University.

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M351_Notes-Day_16_Dilutive_and_EPS_1 - M351 Notes, Class...

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