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Global sells $1,350,000 face value of convertible bonds at a price of 101.Global realizes proceeds of $

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Global sells $1,350,000 face value of convertible bonds at a price of 101.Global realizes proceeds of $ 1,363,500.The ten year bonds carry an interest rate (coupon rate) of 6% with interest paid semi annually. The market rate for equivalent non convertible bonds is 8%.The convertibility feature is not separable from the bonds is 8%.The convertibility feature is not separable from the bonds. The fair value of the bond component is $1,166,531 determined as follows:
PV of principal repayment $616,122.50
PV of interest payments 550,408.50
Fair value of bond at 8% $1,166,531

Prepare the required journal entries for this question.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Fundamentals of Financial Management

Fundamentals of Financial Management

ISBN: 978-0324597707

12th edition

Authors: Eugene F. Brigham, Joel F. Houston

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Callable bond: A bond that can be redeemed by the issuer before the maturity date, potentially leaving the bondholder without future interest payments. They usually offer higher yields than non-callable bonds. Puttable bond: A bond that gives the bondholder the right to sell the bond back to the issuer before the maturity date, providing flexibility to the bondholder. They typically offer lower yields than non-puttable bonds. Convertible bond: A bond that can be converted into a predetermined number of shares of the issuing company\'s common stock at the bondholder\'s discretion. They offer the potential for capital appreciation in addition to periodic interest payments and typically offer lower yields than non-convertible bonds. Zero coupon bond: A bond that does not pay periodic interest payments, but instead is sold at a deep discount to its face value and redeemed at face value upon maturity, providing a capital gain to the investor. They are often used to fund long-term projects and have longer maturities than other bonds.

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