Mid module review 4 assume that bearingpoint

Info icon This preview shows pages 27–29. Sign up to view the full content.

View Full Document Right Arrow Icon
MID-MODULE REVIEW 4 Assume that BearingPoint announced the split-off of its Canadian subsidiary, BearingPoint reported a gain from the split-off. (1) Describe the accounting for a split-off, (2) Why was BearingPoint able to report a gain on this transaction? The solution is on page 8-50. Convertible Securities Convertible secnrities are debt and equity securities that provide the holder with an option convert those securities into other securities. In this section, we consider two specific types - convertibles: convertible debt securities, where debt is converted to common stock, and conven ible preferred securities, where preferred stock is converted to common stock. Convertible Debt Securities Xilinx had convertible debt transactions in 2010, as explained in the following excerpt from f notes to its 10-K report: 2.625% Senior Convertible Debentures In June 2010, the Company issued $600,0 million prin- cipal amount of 2,625% Debentures to qualified institutional investors, The 2,625% Debentures are senior in right of payment to the Company's existing and future unsecured indebtedness". The 2.625% Debentures are initially convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 33,0164 shares of common stock per $1 thousand principal amount of the 2,625% Debentures, representing an initial effective conversion price of approxi- mately $30,29 per share of common stock, The convertible debentures are reported as a long-term liability on Xilinx's balance sheet. To the effects that conversion would have on Xilinx's financial statements, assume that the bonds reported at their face amount of $600 (in $ millions) and that all of the bonds are subsequ converted into 19,809,840 shares ([$600 million/Sl ,000] X 33.0164 shares) of common with a par value of $0.01 per share, The financial statement effects of the conversion are as - lows (Xilinx reports its balance sheet in $OOOs): j( . Liabil- Contrib. + Earned .~ Rev- ities + Capital Capital t enues ______ ~~~~______________ r A \ \ \ Capital l 0 __ ._._. •• t _ Income Statement Transaction Cash Asset Expen- ses + Noncash Assets $198 Conversion of convert- ible debt Common Stock -600,000 Long-Term Debt $599,802 Additional Paid-In
Image of page 27

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Module 8 I Equity Recognition and Owner Financing 8-28 conversion, the debt is removed from the balance sheet at its book value ($600 million ed in this case) and the common stock is issued for that amount, resulting in an increase in mmon Stock account of $198,000 (assuming 19,809,840 shares issued with a par value of 1 per share). Additional Paid-In Capital is increased for the remaining amount. No gain or or cash inflow or outflow) is recognized as a result of the conversion. vertible Preferred Stock - ed stock can also contain a conversion privilege. Xerox provides an example in its 2010 - report: Series A Convertible Preferred Stock In connection with the acquisition of ACS in February 2010 see Note 3 Acquisitions for additional information), we issued 300,000 shares of Series A convertible oerpetual preferred stock with an aggregate liquidation preference of $300 and a fair value of $349 as of the acquisition date to the holder of ACS Class B common stock. The convertible preferred
Image of page 28
Image of page 29
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern