Question

On January 1, 20X5, Tiggly Inc. issued a $4,000,000, four-year, 3% convertible bond. Interest is paid...

On January 1, 20X5, Tiggly Inc. issued a $4,000,000, four-year, 3% convertible bond. Interest is paid semi-annually on June 30 and December 31. The market rate for similar non-convertible bonds when issued was 4%. Each $1,000 bond can be converted into 50 common shares. The total consideration received for the bonds was $4,150,000. What amount should be recorded to the reserves/contributed surplus account when recording the issuance of the bonds?  

a.

$146,510

b.

$419,310

c.

$296,510

d.

$226,155

Homework Answers

Answer #1

Solution:

Bond price of similar non convertible bonds:

Computation of bond price
Table values are based on:
n= 8
i= 2.00%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.85349 $4,000,000.00 $3,413,961
Interest (Annuity) 7.32548 $60,000.00 $439,529
Price of bonds $3,853,490

Amount should be recorded to the reserves/contributed surplus account when recording the issuance of the bonds

= $4,150,000 - $3,853,490 = $296,510

Hence option c is correct.

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