[Anonymous]

Bonds definitely wasn’t my strongest topic going through the Becker chapters, but I have started Wiley Test Bank for review and have crossed the following question that has thrown me off a little regarding the information provided to solve it.

Simms Corp reports under IFRS. Simms issued 2,000 $1,000 convertible bonds at par, with an annual interest rate of 5% when the market rate was 8%. The bonds are due in 5 years and each $1,000 bond in convertible into 3 shares of common stock. At what amount would Simms record the equity component of the bond?

a) 2,000,000

b) 6,000

c) 239,569

d) 1,760,431

The answer is c) 239,569, which Wiley arrived at by discounting the principal and interest to find the bond payable, and then essentially plugging for the ‘equity component’. Aside from using logic and just assuming that ‘c’ wold be the correct answer because none of the others would make sense, is it possible to solve this problem the way that Wiley shows in the solution (given that the present value factors are not provided in the question facts)?

I wish I could fast forward the next 3 weeks – it will be a miracle if I pass FAR…

[Anonymous]

yes, you can make a PV $1 and ordinary annuity table from scratch using the formula 1/(1+i)^n

cindy(yaeger instructor) did a great job explaining this.

and yes, you are expected to know how to make a PV table for PV $1 and PV of ordinary if it isn't supplied.

[Anonymous]

My impression is that they almost always provide the tables or factors, but it is possible to not have them provided.

My simple way for figuring them is to just multiply/divide it out the appropriate number of times – like for 8% interest for 5 years, I'd just multiply 1*1.05*1.05*1.05*1.05*1.05 for FV or divide 1/1.05/1.05/1.05/1.05/1.05 for PV. It's a hassle to use that method for annuities, but even though I tend to be good with algebra and equations, I never could remember the “real” way to figure for annuities and PVs, so I did KISS!

[Topsya]

What is “KISS”???

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Anonymous]

Keep It Simple Stupid…sorry, with all the CPA abbreviations using a non-CPA one probably wasn't such a bright move! lol.

[Topsya]

lol

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Author]

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