账户应付利息与应付债券应计.ppt

6. Explain the relationship between common
stock and additional paid-in capital on
common stock
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Convertible Bonds
A company may issue bonds that are convertible into common stock. At conversion, the bondholder exchanges the bonds for a specified number of common shares and becomes a stock holder)
Review questions
1. What is the difference between China’s accounting and American accounting when recording bond issue cost?
2. 账户“应付利息”与“应付债券-应计利息”的 区别
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Characteristics of convertible bonds
▪ Debt ▪ Equity ▪ Convertible feature
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The difference between convertible bonds and Bonds issued with detachable stock
stock is $26.50 per share.
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1. a. 2005 July 3
Bonds Payable
பைடு நூலகம்
500,000
Discount on Bonds Payable
Common Stock (500 x 20 x $5)
Additional Paid-in Capital from
Bond Conversion
($500,000 - $7,400 - $50,000)
b. 2005 July 3
Bonds Payable
500,000
Loss on Conversion of Bonds
to Common Stock
27,400
Discount on Bonds Payable
Common Stock (20 x 500 x $5)
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Long-term notes payable
▪ Notes payable issued for cash ▪ Notes payable exchanged for cash and
rights or privileges ▪ Notes payable exchanged for property,
Additional Paid-in Capital from
Bond Conversion
[($52 - $5) x500 x 20]
7,400 50,000 442,600
7,400 50,000 470,000
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Notes payable
▪ an unconditional written agreement to pay a sum of money to the bearer on a specific date
goods or services
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Notes payable issued for cash
▪ interest-bearing notes payable ▪ non-interest bearing notes payable.
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Example 1
On January 1, 2004, Johnson Company issues a 3-year, interest-bearing note with a face value of $8,000，12% interest rate, in exchange for cash.
warrants
Book value method
▪ The stockholder’s equity (common stock and additional paid-in capital) is recorded at the book value of the convertible bonds on the date of conversion, and no gain or loss is recorded upon conversion
3. Recording implicit interest for zero coupon bonds
4. Explain the steps for recording bonds retired prior to maturity
5. Explain the characteristics of Bonds issued with detachable stock warrants
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Convertible Bonds
Shannon Corporation has outstanding convertible bonds with a face value of $10,000,it has just paid interest on these bonds and the bonds have a book value of 10500. Each $1,000 bond is convertible into 40 shares of common stock (par value $20 per share). All bonds are converted into common stock when the market value of Shannon’s common
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Market value method
▪ The stockholders’ equity is recorded at the market value of the shares issued on the date of conversion, and a loss is recorded. The loss is computed by comparing the market value of the shares with the book value of the bonds at the time of conversion