How much is the gain or loss on the retirement

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Reference no: EM132966857

Question - COMPOUND FINANCIAL INSTRUMENTS (RETIREMENT) - On January 1, 2019, XYC Company issued P6,000,000 of its 8%, 6 year bonds at P110. Interest is payable every June 30 and December 31. Each P1,000 bond is convertible into 5 ordinary shares of P100 par value. The prevailing market rate of interest for similar debt without the conversion option is 10%.

On January 1, 2021, one-third of the bonds were retired for P2,100,000. On this date, the market price of the share was P120 and the prevailing rate of interest on similar debt instrument was 9% without the conversion option.

On July 1, 2021, one-half of the remaining holders of the convertible bonds exercised their conversion privilege. On this date, the market price of the share was P140 and the prevailing rate of interest on similar debt instrument was 8% without the conversion option.

Requirements -

1. How much is the equity component arising from the bond issuance?

2. How much is the gain (loss) on the retirement?

3. How much is the net increase (decrease) in the total shareholder' equity as a result of the conversion?

4. How much is the interest expense for the year ended December 31, 2021? Explain.

5. How much is the carrying amount of the bonds payable as of December 31, 2021? Explain.

6. Journal entries for the corresponding situations.

Reference no: EM132966857

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