Order of priority in valuation

a. Fv of the bonds
b. PV of the cash flows
No of warrants 5,000.00
No of shares that can be acquired 20,000.00
Exercise price 30.00
Par Value 25.00
 5,000,000.00
1,000.00
No of Bonds 5,000.00
30.00
No. of warrants 150,000.00

Total proceeds 5,150,000.00

Less: Liability/Debt
a. FV - wala
b. PV of cash flows
FA 5,000,000.00 2,600,000.00
Nominal interest 600,000.00 2,058,000.00 4,658,000.00
Equity portion / Share warrants outstanding 492,000.00

discount
Face amount 5,000,000.00
PV of cash flows 4,658,000.00
discount 342,000.00

Cash 5,150,000.00
Discount on BP 342,000.00
Bonds Payable 5,000,000.00
Share warrants outstanding 492,000.00

Total proceeds 5,150,000.00

Less: Liability/Debt
a. FV - available 4,750,000.00
b. PV of cash flows - wala
Equity portion/share warrants outstanding 400,000.00

Cash 5,150,000.00
Discount on BP 250,000.00 (5,000,000 - 4,750,000)
Bonds Payable 5,000,000.00
Share warrants outstanding 400,000.00
Proceeds 6,000,000.00 FA
FV of bonds 5,735,000.00 PV
Share warrants outstanding 265,000.00 Premium on BP

1.1.20x1
Cash 6,000,000.00
Share warrants outstanding 265,000.00
Bonds Payable 5,000,000
Premium on BP 735,000.00

12.31.20x1
Interest Expense 400,000.00
Cash 400,000.00

Premium on BP 55,900.00
Interest Expense 55,900.00

Cash 600,000.00
Share warrants outstanding 265,000.00
OS 500,000.00
SP-OS 365,000.00
Part of share premium

share premium
 5,000,000
5,735,000.00
735,000.00

Y IE IP A CA
0 5,735,000.00
1 344,100.00 400,000.00 (55,900.00) 5,679,100.00
TFA 1,000,000.00
FA 1,000.00
No. of bonds 1,000.00
No. of bonds converted 400.00

CA of the bonds 12.31.13

FA 1,000,000.00 400,000.00
Premium on BP 60,000.00 24,000.00
CA of the bonds (1000) 1,060,000.00 424,000.00

CA of the bonds converted (400/1000) 424,000.00

To record conversion
BP 400,000.00
Premium on BP 24,000.00
 OS 200,000.00
SP - OS 224,000.00

SP - OS 4,000.00
Cash 4,000.00

Bonds CA 4,750,000.00
SP - CP 1,000,000.00
5,750,000.00
Par value of the OS 4,000,000.00
Share Premium - OS 1,750,000.00
Formula for gain/loss
CA of bonds payable 5,178,300.00
FV of the bonds without conversion privilege 5,400,000.00
gain/(loss) extinguishment (221,700.00)

Total payments 5,550,000.00

FV of bonds without conversion privilege 5,400,000.00
Equity component 150,000.00

Face amount 5,000,000.00

Premium on BP 178,300.00
SP - Conversion privilege 150,000.00
Loss on extinguishment 221,700.00
Cash 5,550,000.00

To close out the remaining balance of the SP-conversion privilege

Equity portion 600,700.00

retired / equity component that was paid 150,000.00
unpaid portion 450,700.00

SP - Conversion privilege 450,700.00

SP - issuance 450,700.00
 Cash
BP
SP-CP
Prem on BP

No. of bonds converte 400.00

50.00
No of shares 20,000.00

Initial 224,000.00
Less: conversion cost 4,000.00
 220,000.00

SP - CP 2,000,000 (this is for thr 10,000)

1,000,000 only for the converted portion

No of bonds converted 5,000.00

40
No of shares 200,000.00
Par value 20
Par value of shares 4,000,000.00

BP 5,000,000.00
SP - CP 1,000,000.00
Discount on BP (500,000/2) 250,000.00
OS 4,000,000.00
Share Premium - OS 1,750,000.00

if not converted and paid at maturity, there will be no gain or loss

Bonds Payable 5,000,000.00

Accrued Interest 300,000.00
Cash 5,300,000.00

SP - Conversion privilege 485,000.00

SP - Issuance/OS 485,000.00
 Proceeds 6,000,000
FV of bonds ex warrant 5,399,300
Equity portion 600,700

debited to Share Premium - conversion privilege

Proceeds 5,500,000.00
FV of the bonds 5,150,000.00 debt portion
Share premium - conversion privilege 350,000.00

FA 5,000,000.00
Fv of bonds 5,150,000.00
Premium on BP 150,000.00

5,500,000.00
5,000,000.00
350,000.00
150,000.00