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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%.
Loss on early extinguishment
Discount on bonds payable
$685,000 – 676,290 700,000
$700,000 – 676,290 14-26 Convertible Bonds
Some bonds may be converted into common
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.
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
Convertible bonds payable
Premium on bonds payable 103,000,000
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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- Fall '10