The bonds are removed from the accounting records and

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Unformatted text preview: e bonds are removed from the accounting records and the new shares issued are recorded at the same amount (in other words, at the book value of the bonds). At Date of Exercise of One-half of the Bonds HTL (Issuer) Convertible bonds payable Premium on bonds payable Common stock Paid-in capital – excess of par 50,000,000 1,000,000 2,000,000 49,000,000 50,000 bonds × 40 shares × $1 par = $2,000,000 par value 50,000 bonds × 40 shares × $1 par = $2,000,000 par value 14-21 Induced Conversion Companies sometimes try to Companies induce conversion. The motivation might be to reduce debt and become a better risk to potential lenders or achieve a lower debt-to-equity ratio. When the specified call price is less than the conversion value of the bonds (the market value of the shares), calling the convertible bonds provides bondholders with incentive to convert. 14-22 U.S. GAAP vs. IFRS Convertible Bonds Under IFRS, unlike U.S. GAAP, convertible debt is divided into its liability and equity ele...
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This document was uploaded on 02/16/2014 for the course ACC 311 at Cal Poly Pomona.

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