010 J K M N 0 1 . B D E F G H 3 Leonard Inc. offers 10 year, 8% convertible bonds (par $1,000). Each bond may be converted into common shares. Similar straight bonds carry an interest 4 rate of 10% on the open market. 1,000 bonds (par $1,000) are issued at 95 on January 1, 2021. 5 6 On January 2, 2024 Leonard Inc. offers a cash premium of $30,000 to bondholders if they convert their bonds into common shares. At the time the market value of the bonds is $922,632. 8 9 Required: a) Calculate the PV of the convertible bond and record the entry to issue the convertible bonds. (Hint: split out the liability and equity components accordingly) 10 b) Prepare the bond amortization schedule for the first 4 years. 11 c) Prepare the conversion entry using the $0 Equity Method 12 d) Prepare the conversion entry using the Residual Method 13 14 Date Accounts DR CR 15 16 a) 17 18 19 20 21 > Summary Q1 - Taxes Q2 - Pensions Q3 - Leases Q4 - Cash Flow Q5 - CFI (Bonds) Q6 - EP ... + Ready 1 Clipboard N Font IN Alignment IT Number 21 Styles Cells Editing Analysis AutoSave Off
c B D E F G H | K L M N O P 0 Date Accounts DR CR 15 16 a) 17 18 19 20 21 22 23 b) 24 25 Date Cash Interest Discount Carrying Amount 26 27 29 30 31 32 33 34 35 Date Accounts DR CR 36 37 38 c) 39 40 41 Summary Q1 - Taxes Q2 - Pensions Q3 - Leases Q4 - Cash Flow Q5 - CFI (Bonds) Q6 - EP ... Ready 010 J K M N 0 1 . B D E F G H 3 Leonard Inc. offers 10 year, 8% convertible bonds (par $1,000). Each bond may be converted into common shares. Similar straight bonds carry an interest 4 rate of 10% on the open market. 1,000 bonds (par $1,000) are issued at 95 on January 1, 2021. 5 6 On January 2, 2024 Leonard Inc. offers a cash premium of $30,000 to bondholders if they convert their bonds into common shares. At the time the market value of the bonds is $922,632. 8 9 Required: a) Calculate the PV of the convertible bond and record the entry to issue the convertible bonds. (Hint: split out the liability and equity components accordingly) 10 b) Prepare the bond amortization schedule for the first 4 years. 11 c) Prepare the conversion entry using the $0 Equity Method 12 d) Prepare the conversion entry using the Residual Method 13 14 Date Accounts DR CR 15 16 a) 17 18 19 20 21 > Summary Q1 - Taxes Q2 - Pensions Q3 - Leases Q4 - Cash Flow Q5 - CFI (Bonds) Q6 - EP ... + Ready 1 Clipboard N Font IN Alignment IT Number 21 Styles Cells Editing Analysis AutoSave Off c B D E F G H | K L M N O P 0 Date Accounts DR CR 15 16 a) 17 18 19 20 21 22 23 b) 24 25 Date Cash Interest Discount Carrying Amount 26 27 29 30 31 32 33 34 35 Date Accounts DR CR 36 37 38 c) 39 40 41 Summary Q1 - Taxes Q2 - Pensions Q3 - Leases Q4 - Cash Flow Q5 - CFI (Bonds) Q6 - EP ... Ready
