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What is the equity component of the issuance

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Question - On January 1, 2019, Silakbo Company issued 1,000 convertible bonds. The bonds have a three year term and issued at 110 with face value of P1,000 per bond, giving total proceeds of P1,100,000. Interest is payable annually in arrears at a nominal annual interest rate of 6%. Each bonds is convertible at any time up to maturity into 25 shares of capital with par value of P20. The bonds are converted on December 31, 2019. When the bonds are issued, the prevailing market rate for similar books without conversion privilege is 9%. The present value of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for three periods is 2.53.

1. What is the equity component of the issuance of the convertible bonds on January 1, 2019.

2. Recording the conversion in accordance with current financial reporting standards red should record gain on conversion of.

Reference no: EM132946073

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