The 2018 annual report of MLS Corporation included the following disclosure note:
Required:
1. Prepare the journal entry that was recorded when the bonds were issued on June 15, 2018.
2. What amount of interest expense, if any, did MLS record the first year the bonds were outstanding?
3. Normally under U.S. GAAP, we record the entire issue price of convertible debt as a liability. However, MLS separately recorded the liability and equity components of the notes. Why?
4. Obtain the relevant authoritative literature on classification of debt expected to be financed using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the criteria for reporting debt potentially convertible into cash. What is the specific codification citation that MLS would rely on in applying that accounting treatment?