On I January 20X7, Cedar Ltd. issues $7,600,000 face amount of 6%, eight-year, convertible debentures. Interest is payable annually on 31 December. The debentures are convertible at the investor's option at an exchange price of $8 per share. The market rate of interest for nonconvertible bonds of similar risk and maturity is 7%. The net proceeds received by Cedar amounted to $8,200,000. Required: l. Cedar is a public company. Record the issuance of the bonds on I January 20X7, and the journal entry for interest expense on 31 December 20X7. Cedar uses the effective interest amortization for bond premium and discount. 2. Cedar is a private company and complies with ASPE. Record the issuance of the bonds on I January 20X7 and the journal entry for interest expense on 31 December 20X7. Cedar uses straight-line interest amortization for bond premium and discount. 3. Comment on the differences between requirements I and 2. Comment on the impact on the financial statements, and suggest a justification for the ASPE treatment

Answer rating: 100% (QA)

Computation of Present Value of Debentures Year Interest Payment Face Value x 6 Principal Repayment Discount Factor for 1 at 7 Present Value 1 456000 09346 426168 2 456000 08734 398288 3 456000 08163 ... View the full answer