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Chapter 16: Q25Q (page 874)
What type of earnings per share presentation is required in a complex capital structure?
An organization with a complex capital structure report both basic EPS and diluted EPS in the financial statements.
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Explain how the conversion feature of convertible debt has a value (a) to the issuer and (b) to the purchaser.
Question: Archer Company issued \(4,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of the debt without the conversion feature is \)3,800,000. Prepare the journal entry to record the issuance of the convertible bonds.
What is meant by a dilutive security?
Angela Corporation issues 2,000 convertible bonds at January 1, 2016. The bonds have a 3-year life, and are issued at par with a face value of \(1,000 per bond, giving total proceeds of \)2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%.
Instructions
(a) Compute the liability and equity component of the convertible bond on January 1, 2016.
(b) Prepare the journal entry to record the issuance of the convertible bond on January 1, 2016.
(c) Prepare the journal entry to record the repurchase of the convertible bond for cash at January 1, 2019, its maturity date.
What effect do stock dividends or stock splits have on the computation of the weighted-average number of shares outstanding?
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