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Wedge Corporation issued $ 1 , 5 0 0 , 0 0 0 of 1 0 % convertible bonds for $ 1 , 6 2
Wedge Corporation issued $ of convertible bonds for $ on March The bonds are dated March pay interest semiannually on August and February and the premium is amortized using the straightline method. The bonds are due on February and each $ bond is convertible into shares of Wedges $ par common stock. On March when the shares were selling for $ per share, $ of bonds were converted. On September when the shares were selling for $ per share, the remainder of the bonds were converted.
Required:
Prepare the journal entries to record each bond conversion using a the book value method and b the market value method.
Next Level If the company were required under GAAP to assign a value to the conversion feature, explain how the valuation would be determined no calculations are required
Compute the companys debttoequity ratio total liabilities divided by total shareholders equity, as mentioned in Chapter under each alternative. Assume the companys other liabilities are $ million, and that shareholders equity before conversion is $ million. Compute the ratio right before and right after the March transaction under each alternative.
Assume the company uses IFRS and issued the bonds for $ on March On this date, it determined that the fair value of each bond was $ and the fair value of the conversion option was $ per bond. Prepare the journal entry to record the issuance of the bonds.
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