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
Convertible bonds payable
Premium on bonds payable
Paid-in capital – excess of par 50,000,000
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
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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