During the year, Scoop Ltd., a publicly traded company, issued bonds. The convertible bonds have a face value of $1,000,000, a term of five years, and pay annual interest at a stated rate of 8%. The bonds are convertible into 10 shares for every $1,000 bond at the option of the investor. Which of the following describes how these bonds should be reported by Scoop? 

A. Scoop must determine the present value of the bonds to determine the liability to be reported on the statement of financial position. The excess of proceeds over the liability is reported as equity on the statement of financial position. 

B. Scoop has the choice to report these bonds as a hybrid instrument (showing debt and equity components on the statement of financial position) or to record the conversion option as zero and report the bonds as a pure liability. 

C. Scoop must report the bonds as a liability. No equity component exists due to the nature of the conversion ratio. 

D. Scoop must determine the future value of the liability to be reported on the statement of financial position. The excess of the proceeds over the liability is reported as equity on the statement

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer ... View the full answer