Debt with Conversion Features and Other Options

Question 1

What is JE for Bond Conversion Feature?

Answer 1

Upon Conversion JE is:
DR Bond Payable 1,000,000 (@CV bond)
DR Premium 300,000(@CV bond)
CR C/S 50,000 (@PAR)
CR APIC 1,250,000 (@ PLUG)
Note: Carrying value of debt is removed and replaced by S/E by conversion feature of the same amount

Question 2

What is generally associated with terms of convertible debt

Answer 2

Convertible debt should have lower interest rate than non convertible debt due to conversion feature

Question 3

What is JE for bonds with Warrants?

Answer 3

DR Cash 1,090,000 (Proceeds)
DR Discount 110,000(PLUG)
Cr Bond Payable 1,000,000(FACE)
Cr Warrants 200,000(MV)
Note: If both MV for debt with warrants and MV for warrant is provided use relative Fair Value method to calculate both bond payable and warrants