Flamingo Construction Ltd., a publicly traded company, offers five-year, 9% convertible bonds (par $1,000). Interest is paid annually on the bonds. Each $ 1,000 bond may be converted into 150 common shares, which are currently trading at $ 9 per share. Similar straight bonds carry an interestrate of 12%.1,000 bonds are issued at 102.

PV factor for annuity due of 5 annual payments at 9% annual rate, 3.889651; PV factor for S 1 due in 5 years at 9% annual rate, 0.64993 1; PV factor for annuity of 5 annual payments at 12% annual rate, 3.604776: py factor for $ 1 due in 5 years at 12% annual rate, 0.567427

Instructions

a) Calculate the amount to be allocated to the bond and to the option.

b) Prepare the journal entry for the issuance of the bonds.

c) Assume that after three years, when the carrying amount of the bonds was $ $949,298, 75% of the holders of the convertible debt decided to convert their convertible bonds. Prepare the journa entry to record the conversion.

d) How many shares were issued at the conversion?

e) If Flamingo was not publicly traded what alternative is permitted for the allocation in required""?