Reference no: EM132601425
Question - On January 1, 2020, Pizza Gnomes issued 12%, convertible bonds with a par value of $15,000,000 due in 10 years for $17,887,945.97. Each $1,000 bond is convertible into ten shares of $5.00 par value common stock. On January 1, 2022, when the stock was selling for $70.00 per share, holders of 20% of the convertible bonds exercised their conversion options. Straight-line amortization is used for bond discounts or premiums.
Instructions -
(1) Record the necessary journal entry based on the information provided.
(2) The financial manager is suggesting paying the remaining bondholders $50,000 cash to convert their bonds. Briefly explain how this will affect the accounting treatment and financial statements if this suggestion is put into effect.
(3) Pizza Gnomes just hired a new intern. This intern does not quite understand the purpose of a diluted earnings per share figure. Briefly explain to the intern what a diluted earnings per share is and more importantly how it is important for investors in terms of their decision making.
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