Bond Features Inc.(“BFI”) has bonds outstanding w
Bond Features, Inc.(“BFI”) has bonds outstanding with a $900,00 par value.The BFI bonds pay a 4.5% coupon, mature in three years, and have net book value of $785,000.The bonds are convertible into 20,000 shares of common stock, with a $1 par value.The current market value of the common shares is $62.50.Under U.S.GAAP, the amount that will be recorded as additional paid-in capital if the bonds are immediately converted is closest to:
A.$115,000.
B.$765,000.
C.$1,250,000.
参考解答
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2024-10-27 11:20:50
Ans:B.
Under U.S.GAAP, bond proceeds are reclassified from debt to equity when the bond is converted into common stock.The amount recorded in additional paid-in capital is the balance of the bond liability after crediting the outstanding bond discount and the common stock issued at par.No gain or loss is recorded from the conversion.
Bond discount = net book value – bond par value
= $785,000 - $900,000= $115,000
Common stock = # shares on conversion x par value
=20,000 x $1= $20,000
Additional paid-in capital
= bond par value – (bond discount + common stock)
= $900,000 – (115,000 +20,000)
=$765,000
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