[Anonymous]

I am a bit confused… Can someone explain the main concepts of this type of transaction? And how do we memorize the J/E under two different methods: book value method vs. market value method, and when to use which one? And the difference of the J/E between when there are and there aren’t detachable warrants involved?

I use Becker, but they really didn’t explain too well for this topic.

Thanks!

[Anonymous]

Convertible bonds : you can convert it into equity . Some convertible bonds come with warrants .

Non Detachable convertible bonds (no warrants ) since they are not detachable , bonds payable are converted into Equity

Book Value – No g/l recognized ( US GAAP) and G/L is added into APIC

Bonds – 100, premium 20.

General JE:

DR Cash 120

CR Bond pyble 100

CR premium 20

these bonds are converted into Equity –

DR Bond pyble 100

DR premium 20

CR Equity ($1*10) 10

CR APIC (plug in ) 110

CASE 1 mv of conversion ( it is NON GAAPP) where you recognize g/l there you dont need to plug in APIC you show gain and loss seperately on JE

[Anonymous]

Detachable warrants : You just need to convert warrants into equity

eg same above only warrant is added now

bond100

premium 20

warrant 15

sold at 120

DR cash 120

Cr bond pyble 100

CR warrant 15

CR premium (plig in ) – 5

(here bond discount or premium is plug in number)

now entire warrants are converted into equity woth $1 per share. warrant + $20 per share be converted into equity

DR cash ( 20*1) 20

DR warrant 15

CR CS (1*1) 1

CR (APIC ) plug in 34

[Author]

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