Fall 2013_Acc 3100_Ch 14

The indenture specified a call price of 685000 the

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Unformatted text preview: specified a call price of $685,000. The bonds were issued previously at a price to yield 14%. Masterwear (Issuer) Bonds payable Loss on early extinguishment Discount on bonds payable Cash $685,000 – 676,290 700,000 8,710 23,710 685,000 $700,000 – 676,290 14-26 Convertible Bonds Some bonds may be converted into common Some stock at the option of the holder. When bonds are converted the issuer (1) updates interest expense and (2) amortization of discount or premium to the date of conversion. The bonds are reduced and shares of common stock are increased. stock Bonds into Stock 14-27 Convertible Bonds On January 1, 2013, HTL Manufacturers issued $100,000,000 of 8% convertible debentures due 2033 at 103 (103% of face value). The bonds are convertible at the option of the holder into $1 par common stock at a conversion ratio of 40 shares per $1,000 bond. HTL recently issued nonconvertible, 20 year, 8% debentures at 98. At Issuance, January 1, 2013 HTL (Issuer) Cash Convertible bonds payable Premium on bonds payable 103,000,000 100,000,000 3,000,000 $100,000,000 × 103% $100,000,000 × 103% 14-28 Convertible Bonds Assume the bondholder exercises one-half of their option to convert the bonds into shares of stock when there is an unamortized premium of $2,000,000 associated with these bonds. The bonds...
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