405ch16partI - Chapter 16 Part I Conversions of Bonds Use...

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Part I Conversions of Bonds – Use the Book Value approach – no gains or losses Ex: Issued Convertible bonds $1000 par, with a $1200 market value, and a current book value of $1100. They are convertible into 10 shares of $100 par common stock. Bonds Payable 1000 Premium on B/P 100 Common Stock 1000 APIC, CS 100 Induced Conversions Issuer offers a sweetener (conversion expense) to induce the bondholder to convert. Ex: I have $1,000,000 in Bonds outstanding at 14%. I want the bondholders to convert. The original agreement was that the bonds would convert into 2000 shares of $10 par common stock. I’ve agreed to add an extra $100,000 in cash as a sweetener. Bonds Payable 1,000,000 Debt Conv. Exp 100,000 Common Stock 20,000 APIC, CS (plug) 980,000 Cash 100,000 Convertible Preferred – Use book value Ex: 1000 shares of $1 par preferred (originally issued at $1200) for 1000 shares of $2 par common stock. Convertible preferred
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This note was uploaded on 11/05/2011 for the course ACCT 405 taught by Professor Caylor during the Summer '11 term at South Carolina.

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405ch16partI - Chapter 16 Part I Conversions of Bonds Use...

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