Question
QUESTION 1: (20 MINUTES, 10 MARKS) On January 1, 2022, Shopify Inc. issued green bonds and received proceeds of $57,069,000. The bonds mature in
QUESTION 1: (20 MINUTES, 10 MARKS) On January 1, 2022, Shopify Inc. issued green bonds and received proceeds of $57,069,000. The bonds mature in 13 years and carry a 9% interest rate paid semi-annually. The bonds were issued at a price of 126.82 to yield 6%. Shopify Inc. has a December 31 year-end. a) On initial recognition, the carrying net book value of the liability for these bonds equals the original proceeds received by Shopify Inc. Will the carrying value of the liability increase over time, or decrease? Briefly explain. [2 mark] b) Explain, with numerical support, the financial statement implications of the bond issuance and related transactions on Shopify's Statement of Profit or Loss and Statement of Cash Flows for the first year-ended December 31st. Be specific about the accounts (line items) affected. Quantify. [5 marks] c) Why do bond investors prefer covenants be included in bond indenture agreements? Give two examples of common bond covenants and explain why each could be beneficial to these investors. [3 marks]
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