Reference no: EM132884492
Question - X Corporation reported the following information in its December 31, 2020 financial statements.
On April 30th,2019, the Corporation issued $40,000,000, 10%, convertible bonds due on April 30th, 2022,. Interest is due semi-annually on April 30th. And October 31st each year. The convertible bonds are convertible at the option of the holder at any time prior to April 3oth, 2022 in whole or in multiplies of $1,000, into common shares of the Corporation at a conversion price of $1.00 per common share which is equal to the issuance on conversion of approximately 40,000,000 common shares in total.
At December 2019, $38,182,000 of the convertible bonds , net of transaction costs, has been attributed to the debt component and $1,920,000 has been attributed to the equity component of the Instrument. The difference between the carrying value and the face value of the convertible bonds will be accounted for using the effective interest rate method.
X Company reported $39,667.000 cash proceeds from the issue of the convertible bonds.
Required -
a. What is the face value of the bonds?
b. Indicate the stated rate of the bonds?
c. Identify three(3) balance sheet accounts that are affected when convertible bonds are issued?
d. Explain how a gain/loss is calculated at the time of conversion of the bonds to common stock?
e. Assume none of the bonds have been converted or retired by December 31st 2019, determine the net value of the bonds at the date of issue.