Nexus Ltd. issued convertible bonds on July 1, 2004. The $5,000,000 bonds pay annual interest of 8%
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Question:
Nexus Ltd. issued convertible bonds on July 1, 2004. The $5,000,000 bonds pay annual interest of 8% each July 1 and mature on July 1, 2020. Each $1,000 bond is convertible into 50 common shares at the investor’s option. Nexus received proceeds of $5,350,000 for the bond at the issue date. The market (yield) rate is 9.5%.
Required:
- Prepare the journal entry on Nexus’ books at issuance using the incremental method. (4 marks)
- Assume Nexus decided to repay (retire) the bonds early on July 1, 2008, after interest is recorded. Record the early repayment assuming Nexus pays investors $5,095,000 of which $925,225 is allocated to the conversion rights. (5 marks)
- Instead of part b) assume the investor’s decision to convert 30% of their bonds on July 1, 2008, after interest is recorded. Record the conversion on Nexus’ books
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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