[jeff]

FAR Resources:

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FAR Score Release: https://www.another71.com/cpa-exam-scores-results-release

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Yeah, I think it is supposed to decrease for sure but it seems like there is supposed to be a way to calculate it and we should know how to do it. But I can't figure it out…If anyone figures it out please let me know. It's bugging me!

[oblio]

@ZSR

Other choices for “Which of the following statements characterizes convertible debt?

The holder of the debt must be repaid with shares of the issuer's stock. (wrong)

No value is assigned to the conversion feature when convertible debt is issued. (right)

The transaction should be recorded as the issuance of stock. (wrong)

The issuer's stock price is less than market value when the debt is converted. (wrong – but I don't know why?)

Is the last answer correct but the right answer is just the best answer of the ones presented? Or is there a concept wrong with the last choice that I am missing?

[NYCaccountant]

Under GAAP, no value is assigned to the equity portion for convertible debt, While under IFRS, the discount or premium is he amount assigned to equity. Say you issue 1,000,000 worth of convertible bonds for 1,100,000, the entry under GAAP would be:

Cash – Dr 1,100,000

Bonds Payable – Cr. 1,000,000

Premium on bonds payable – Cr. 100,000

No value assigned to the equity portion of the security.

Under IFRS, the entry would be:

Cash – Dr. 1,100,000

Bonds Payable – Cr. 1,000,000

Additional Paid in Capital whatever – Cr. 100,000

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[ZSRizvi]

@Oblio

I think it all comes down to the phrasing.

The answer that you chose isn't a characterization of convertible debt…it's a possible outcome, if you get what I mean? It's up to the bondholder to decide when they want to convert the debt so, of course if they can get it at a lower price than prevailing prices that would be best.

But the correct answer makes sense and is the best answer.

Er, I hope my rambling didn't lose you LOL.

BEC (July 2013)
FAR (OCT 2013)
REG (NOV 2013)
AUD (JAN 2014)

The CPA Exam is an opponent that not even the Fellowship of the Ring would want to come across.

I have a long...long...journey ahead of me.

[RandomAlt]

Question: An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the cash paid to the seller is:

A. The same as the face amount of the bond.

B. The same as the face amount of the bond plus accrued interest.

C. More than the face amount of the bond.

D. Less than the face amount of the bond.

I got the question correct (C), mostly by creating a JE with simple numbers…however, I want to make sure I did the JE correctly. I can find example problems with accrued bond interest from the investees side, but not from the investors side.

So, if you could, just let me know if my JE below is correct:

(DR)Bond Investment 100,000

(DR)Accrued Interest Rec 5,000 <— Not even sure what the correct name for this is

(DR)Bond Premium 15,000

(CR)Cash 120,000

Thanks!

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[oblio]

@ZSR – thanks, think I get the question's meaning.

[jeff]

Closing thread for Oct/Nov study group.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Author]

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