Question

What accounting treatment is required for convertible debt and why? What accounting treatment is required for debt issued with stock warrants and why?

Answer 1

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SOL ::-

Convertible debt is the debt that can be converted into equity(common stock) of the issuer at the option of the debt holder as per specified price as per the terms of agreement
Particulars	Debit Amount	Credit Amount
Option 1 If convertible debt Is treated solely as debt
Cash A/C Dr	xxxx
To Bonds Payable A/C		xxxx
To Premium on Bonds Payable A/C		xxxx
Option 2 If convertible debt Is not treated solely as debt
Cash A/C Dr	xxxx
Discount on Bonds Payable Dr	xxxx
To Bonds Payable A/C		xxxx
To Contributed capital		xxxx
Debt issued with stock warrants
Cash A/C Dr	xxxx
Discount on Bonds Payable Dr	xxxx
To Bonds Payable A/C		xxxx
To Stock Warrants Outstanding		xxxx

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