Young Ltd issued 2 000 convertible bonds on 1 January 2015. The bonds have a threeyear term, and are issued at fair value and a face value of $1000 per bond, giving totalproceeds of $2 000 000. Interest is payable annually in arrears at a nominal annualinterest rate of 6% per annum. Each bond is convertible at the option of the holder into afixed number of ordinary shares at any time up to maturity. On 1 January 2015, a marketrelated discount rate for a basic three-year debt instrument for Young Ltd is 10% perannum. On 31 December 2015, it seemed very likely that the holder will exercise his rightto convert the bonds into a fixed number of ordinary shares in the next two months.However, by 31 December 2017, the holder had not exercised this right and the bondswere settled in cash by Young Ltd.Required:a) Explain how the convertible bonds are initially recognised, in accordance withIFRS9: Financial Instruments.b) Prepare the journal entries to account for convertible bonds in the financialstatements of Young Ltd from 1 January 2015 to 31 December 2017.3:38 pm

To answer your query, we will address both parts: the initial recognition of the convertible bonds…

Answered: Young Ltd issued 2 000 convertible…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 4EA: On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated...

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
Flysafe Bhd issues 2,000 convertible bonds at 1 January 2019. The bonds have a 3 years term, and are issued at par with a face value of RM1,000 per bond, giving total proceeds of RM2,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 6%. Each bond is convertible at any time up to maturity into 250 ordinary shares. When the bonds were issued, the prevailing market interest rate for similar debt without the conversion option is 9%. When preparing the draft financial statements for the year ended 31 December2020, the directors are proposing to show the convertible bonds within equity in the statement of financial position, as they believe all the bond holders will choose the equity option when the loan note is due for redemption. They further intend to charge a finance cost of RM120,000 (RM2,000,000 x 6%) in the statement of profit or loss for each year up to the date of redemption. Required Critically evaluate the impact of the directors’ proposed…
Debond Corp. issues £1,000,000 worth of fi ve-year bonds, dated 1 January 2010, whenthe market interest rate on bonds of comparable risk and terms is 6 percent. Th e bondspay 5 percent interest annually on 31 December. What are the sales proceeds of thebonds when issued, and how is the issuance refl ected in the fi nancial statements?
On January 1, 2017, Barclays bank issued 8 %, 5-year bonds with a face amount of K750,000 to Puma Zambia Interest is payable annually at the beginning of the year. The bond is issued for an effective interest rate of 10%. In addition to the purchase price Puma paid the broker K 30,000 to facilitate the purchase of this bond. Requireda) Calculate the value of the bond and prepare the entries to record the issuance of the bonds in the books of Barclays and Pumab) Prepare the entries to record the first annual interest accrual and the payment assuming that the company uses effective-interest amortization. In both Barclays and Puma c) At the end of year 3 Barclays decided to buy back this bond at a cost of K600, 000.Calculate the gain on loss on this transaction and show the double entry also advice if the bond should be bought back. In both Barclays and Puma
Corporation issues 3,000 convertible bonds at January 1, 2015. The bonds have a three year life, and are issued at par with a face value of €1,000 per bond, giving total proceeds of €3,000,000. Interest is payable annually at 6 percent. Each bond is convertible into 250 ordinary shares (par value of €1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. Instructions (a) Compute the liability and equity component of the convertible bond on January 1, 2015. (b) Prepare the journal entry to record the issuance of the convertible bond on January 1, 2015. (c) Prepare the journal entry to record the conversion on January 1, 2016. (d) Assume that the bonds were repurchased on January 1, 2016, for €2,910,000 cash instead of being converted. The net present value of the liability component of the convertible bonds on January 1, 2016, is €2,850,000. Prepare the journal entry to record the repurchase on January 1, 2016.
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (i) Prepare an amortization schedule that covers the duration of the bond till 30 June 2018, using the effective interest rate method. Show all the necessary workings and round off your answers to the nearest dollar. (ii) Prepare the necessary journal entries to record the cash interest payment on 31 December 2017. (iii) “ME’s cash payment for interest decreases over the duration of the bond”. Comment on this statement. (iv)…
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (iv) Assume ME’s Times Interest Earned (TIE) ratio for the financial year ended 31 December 2017 is 5. What will its TIE ratio likely be for the next three years? Explain.
On 2 January 2016, ME Ltd (ME) issued $10,000,000 5-year bonds for $10,811,090. The stated coupon rate is 10% per annum, and the effective interest rate is 8% per annum. Interest is to be paid semi-annually on 30 June and 31 December. The company uses the effective interest rate method of amortizing bond discounts/premiums. As of its most recent financial year ended 31 December 2017, ME expects its net income before interest and tax to be constant over the next three financial years and does not foresee any further interest-bearing borrowings in the near future. (v) Because of a substantial increase in the market rate of interest, ME purchased all the bonds on the open market at par on 30 June 2018. Prepare the journal entry to record the retirement of the bonds on 30 June 2018. Ignore the journal entry for the interest payment on 30 June 2018.
On 1 January 2019, Casio Ltd issued 2,000 4% £100 convertible bonds. Each bond is redeemable in three years' time at par or can be converted into 100 £1 ordinary shares. Interest is payable annually in arrears. The market rate of interest for similar bonds without the conversion option is 5% pa. The annual interest on the bonds was paid on 31 December 2019. What is the carrying amount for the equity component as at 31 December 2019?
on An index-linked bond of £11,000 nominal was issued on 1st July 2016 and it was repaid at 114% on 1st July 2020. Interest on the bond was payable at each anniversary (i.e. in July of each year) at a rate of 5.1% per annum. An investor liable to income tax at a rate of 31% has purchased the bond at issue and held it to redemption. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of 6 months. The value of the inflation indexes at various dates during the term of the loan were as follows: Inflation indexes for 2016-2020 2016 2017 2018 2019 2020 January 103.6 109.2 117 123.5 129.3 July 101.8 108.2 112.1 120.5 125.5 Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.2% per annum from this investment.
Irbid Corporation issues 3,000 convertible bonds at January 1, 2018. The bonds have a three year life, and are issued at par with a face value of JOD1,000 per bond, giving total cash proceeds of JOD4,000,000. Interest is payable annually at 6 percent. Each bond is convertible into 250 ordinary shares (par value of JOD1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. Required: Compute the liability and equity component of the convertible bond on January 1, 2018.
On January 1st, 2017, a nominal £13,000 index-linked bond was issued, and on January 1st, 2019, it was repaid at a rate of 107%. The bond's interest was paid at a rate of 5.6% annually in half-yearly arrears, (January and July of each year)The bond was bought at issue by an investor who is subject to a 34% income tax liability and kept it until redemption.With a six-month time lag, the value of an inflation index was used to index capital and interest payments. The following were the inflation index values at different points during the loan term: Inflation indexes for 2016 - 2019 (on January 2016=102.3, on January 2017=110.4, on January 2018=123 and on January 2019=130.8) (on July 2016=105.1, on July 2017=116.4, on July 2018=127.5 and on July 2018=136.1) Calculate the price paid at issue for the bond, given that the investor has achieved an effective money yield of 6.7% per annum from this investment. (correct answer=15826.72) (no tables, only formulas)

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