Reference no: EM132672693

Problem 1: At the beginning of current year, Kreem Company issued 5,000 convertible bonds payable. The bonds have a three-year term and are issued at 110 with a face amount of $1,000 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 $5. 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?