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Compute what amount should be reported as equity component

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Problem 1: At the beginning of current year, Jackfrost Company issued 5,000 convertible bonds payable. The bonds have a three-year term and are issued at 110 with a face amount of P1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of P5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%. The present value of 1 at 9% for 3 periods is .77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53. What amount should be reported as equity component of the original issuance of the convertible bonds payable?

Reference no: EM132673999

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