Annual report of microsoft corporation reports

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1.The 2011 annual report of Microsoft Corporation reports zero coupon convertible notes that the company issued in June of 2010.

Required:
1. Access the Microsoft website: www.microsoft.com. Select "Investor Relations" and then "SEC Filings." Access the 10 K filing for the year ended January 29, 2011. Search or scroll to find the disclosure notes related to the zero coupon convertible notes. What is the amount of the convertible notes issued?
2. Prepare the journal entry that was recorded when the notes were issued in 2010. Use the information in the financial statement note accessed in Requirement 1. The actual present value of the debt was $1,183,115 (PV of $1,250,000 discounted for 3 years at 1.85%). Consider the conversion component and the debt issue costs for the entry.
3. What amount of interest expense, if any, did Microsoft record the first year the notes were outstanding? Use the information from Requirement 2.
4. Normally, under U.S. GAAP, we record the entire issue price of convertible debt as a liability. However, Microsoft separately recorded the liability and equity components of the notes. Why?
5. Obtain the relevant authoritative literature on classification of debt expected to be financed using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the criteria for reporting debt potentially convertible into cash. What is the specific codification citation that Microsoft would rely on in applying that accounting treatment?

Reference no: EM13881118

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