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CFI 10 Problems With Solutions
CFI 10 Problems With Solutions
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5,400,000
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2. Moriones Company issued P5,000,000 face amount 12% convertible
bonds at 110 at the beginning of the current year. The bonds pay
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interest semiannually on January 1 and July 1. It is estimated that the
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bonds would sell only at 103 w/o the conversion feature. Each 1,000
bond is convertible into 10 ordinary shares with P100 par value.
What is the increase in the SHE arising from the original issuance of
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3. At the beginning of the current year, Sabo Company issued 5,000 convertible
bonds payable. The bonds have a three-year term and are issued at 110 with a
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nominal 6% interest rate. Each bond is convertible at any time up to maturity into
100 ordinary shares with par value of P5. When the bonds are issued, the
prevailing market interest rate for similar debt instrument without conversion
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option is 9%. The present value of 1 at 9% for 3 periods is .77 and the present
value of an ordinary annuity of 1 at 9% for 3 periods is 2.53. What is the equity
component of the original issuance of the convertible bonds payable?
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PV of principal (5,000,000 x .77) 3,850,000
PV of annual interest payments (300,000 x 2.53) 759,000
Total present value of bonds 4,609,000
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converted into ordinary shares which had fair value of 75 per share. The
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unamortized premium on these bonds was 12,000 at the date of conversion. No
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equity component was recognized when the bonds were originally issued. What
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is the increase in the share capital and share premium as a result of bond
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conversion?
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5. At the beginning of the current year, Ace Company issued 5,000,000 of 12%
nonconvertible 5-year bonds at 103. In addition, each 1,000 bond was issued
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warrants at the time of issuance is 95. What amount of the proceeds from the
bond issue should be recognized as an increase in shareholders’ equity?
6-8
6. On December 31, 2016, Tamia Company showed the following
balances:
Bonds Payable- 6% 4 000 000
Discount on bonds Payable 500 000
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Share Premium- Issuance 5 000 000
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Share Premium- Conversion Privilege 700 000
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The interest is payable annually every December 31. The convertible
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bonds are not converted but fully paid on December 31, 2016.
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On such date, the quoted price of the convertible bonds with
conversion option is 105 which is the payment to the bondholders plus
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interest.
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2016?
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CA 3 500 000
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9. At the beginning of the current year, Case company issued 5 000 000
of 12% nonconvertible 5-year bonds 103.
The quoted market value of each warrant was P4. The market value of
the bonds ex-warrants at the time of issuance is 95.
10. Refer to no. 9, what amount of the proceeds from the bond issue
should be recognized as an increase in shareholder’s equity?
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5 000 000*1.03 5 150 000
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5 000 000*.95 4 750 000
Residual amount allocated to warrants 400 000
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