(B) On 1 January 2020, Tin Limited issued 6-year 6% convertible bond at par with a...

 

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(B) On 1 January 2020, Tin Limited issued 6-year 6% convertible bond at par with a face value of $800,000. Interest is payable annually. Each $1,000 bond is convertible into 30 shares of $2 par value ordinary shares. When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. On 1 January 2022, Tin Limited repurchased the convertible bond for $780,000. The fair value of the liability component of the bonds on 1 January 2022 is $707,520. Required: (a) Compute the liability and equity components of the convertible bond and prepare the journal entry to record the issuance of the bond on 1 January 2020. (4 marks) (b) Prepare the journal entry to record the repurchase on 1 January 2022. (5 marks) (c) Discuss the similarity(ies) of issuing convertible bonds and issuing detachable share warrants. bonds with (4 marks) (B) On 1 January 2020, Tin Limited issued 6-year 6% convertible bond at par with a face value of $800,000. Interest is payable annually. Each $1,000 bond is convertible into 30 shares of $2 par value ordinary shares. When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. On 1 January 2022, Tin Limited repurchased the convertible bond for $780,000. The fair value of the liability component of the bonds on 1 January 2022 is $707,520. Required: (a) Compute the liability and equity components of the convertible bond and prepare the journal entry to record the issuance of the bond on 1 January 2020. (4 marks) (b) Prepare the journal entry to record the repurchase on 1 January 2022. (5 marks) (c) Discuss the similarity(ies) of issuing convertible bonds and issuing detachable share warrants. bonds with (4 marks)

Answer rating: 100% (QA)

The liability component of a bond is the present value of ... View the full answer