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Question
On January 2, 2012, Cannon Company issued $10,000,000 of convertible debt. The bonds are zero-coupon, and each $1,000 bond is convertible into 10 shares of Cannon Company's common stock at the bond holder's option. The bonds mature in 2016 and were issued at par. Companies with similar credit profiles were issuing non-convertible debt at an effective rate of interest of 8%. The present value factor for $1 for 5 periods at 8% is .68058. For each of the following assumptions, prepare the journal entry to record the issuance of debt and entries for 2012 and 2013 to record interest expense. No bonds were converted during 2012 or 2013.
A. Cannon Company uses U.S. GAAP to prepare its external financial reporting to shareholders and regulators.
B. Cannon Company uses IFRS to prepare its external financial reporting to shareholders and regulators.
Answer
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Related questions
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Briefly explain the forces behind the rise of IFRS.
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IFRS frequently
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B. permit only one accounting treatment for similar business transactions and events to promote comparability.
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D. follow a more generalized overview approach than do U.S. GAAP counterpart standards.
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B. consistency.
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B. comparable.
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550,000 shares of common stock were outstanding on January 1, 2011.
Bonds convertible into 50,000 shares of common stock were issued on July 1, 2011; the bonds have been determined to be dilutive.
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D. The company must have participating preferred stock outstanding.
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Which of the following is not indicative of a complex capital structure?
A. Outstanding convertible bonds.
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C. Outstanding cumulative preferred stock.
D. Outstanding stock options.
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Assuming that the preferred stock is cumulative, and that there are no dividends in arrears, what is the maximum dividend that may be distributed to common shareholders at December 31, 2012?
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What is the owners' equity balance on December 31, 2012?
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Q:
Which of the following does not accurately describe the proprietary view of the firm?
A. Its focus is on the firm's net assets.
B. It is the prevailing view of GAAP.
C. Its focus is on owners' equity.
D. Whether creditors or shareholders provided the firm's assets is irrelevant.
Q:
By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording conversion losses.
Q:
SFAS No. 123 required companies to use the fair value approach when determining compensation expense pertaining to stock options.