Sun Ltd. has decided to raise additional capital by issuing HK$175,000 face value of bonds with a
Question:
Sun Ltd. has decided to raise additional capital by issuing HK$175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, share warrants should be issued at the rate of one warrant for each HK$100 bond sold. The fair value of the bonds without the warrants is HK$136,000. The proceeds upon issuance of the bonds and warrants was HK$150,000.
Instructions
a. What entry should be made at the time of the issuance of the bonds and warrants?
b. If the warrants were nondetachable, would the entries be different? Discuss.
Step by Step Answer:
a At the time of the issuance of the bonds and warrants the following entry should be made Debit Bon...View the full answer
Intermediate Accounting IFRS
ISBN: 9781119607519
4th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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