At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of 1,000 face amount
At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of ₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000 bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value of the share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. The following present value factors are made available:
PV of 1 at 12% for 5 periods .5674 PV of an ordinary annuity of 1 at 12% for 5 periods 3.6048
PV of 1 at 12% for 10 periods .3220 PV of an ordinary annuity of 1 at 12% for 10 periods 5.6502
PV of 1 at 6% for 10 periods .5584 PV of an ordinary annuity of 1 at 6% for 10 periods 7.3601
PV of 1 at 14% for 5 periods .5194 PV of an ordinary annuity of 1 at 14% for 5 periods 3.4331
PV of 1 at 14% for 10 periods .2697 PV of an ordinary annuity of 1 at 14% for 10 periods 5.2161
PV of 1 at 7% for 10 periods .5083 PV of an ordinary annuity of 1 at 7% for 10 periods 7.0236
A. Prepare all entries for 2021.
B. Compute or provide the answers for the following:
1. What is the issue price of the bonds without warrants?
2. What is the equity component upon initial recognition?
3. How much is the premium or discount on bonds upon issuance?
4. How much cash was received upon the exercise of half of the warrants?
5. How much did the shareholders’ equity increase brought about by the transactions involving the bonds with warrants?