Question
In: Accounting
Sampras Ltd issues $20 million of convertible notes on 1 July 2020. The notes have a...
Sampras Ltd issues $20 million of convertible notes on 1 July 2020. The notes have a life of 6 yrs and a face value of $20 each. Annual interest of 5% is payable at the end of each year. The notes were issued at their face value and each note can be converter into one ordinary shares in Sampras Ltd at any time over their lives. Organisations with similar risk profile to Sampras Ltd have issued debt with similar terms but without the option to convert at the rate of 7% per annume
Required
Identify the present value of the notes and calculate the equity component of the convertible notes
Provide Journal entries
a) issue of the convertible notes
b) the first payment of interest
c) the conversion of convertible notes into shares on 30 June 2021
Solutions
Expert Solution
A)Annual Interest= 20,000,000 *5% = 1,000,000
Present value Of Note = [PVA7%,6*Annual interest ]+ [PVF7%,6*Face value]
=[4.76654*1000000]+ [.66634*20,000,000]
= 4766540+ 13326800
= 18,093,340
Equity Component = Issue price - present value of convertible note
= 20,000,000 - 18,093,340
= 1,906,660
| Date | Account title | Debit | credit |
| 1 July 2020 | Cash | 20,000,000 | |
| Convertible Note Payable | 18,093,340 | ||
| Share premium-Equity conversion | 1,906,660 | ||
| b)30 June 2021 | Interest expense (18,093,340*7%) | 1,266,534 | |
| Convertible Note payable | 266,534 | ||
| Cash | 1,000,000 | ||
| c)30 June 2021 | Convertible Note payable | 18,359,874 | |
| Share premium-Equity conversion | 1,906,660 | ||
| Common stock | 20,000,000 | ||
| Additional paid in capital | 266,534 |
#Interest expense = 18093340*7%=1266533.8 (rounded to 1266534)
#C)Value of Note payable as on 30 June 2021= Issue price + amortization at time of first payment
= 18,093,340 +266,534
= 18,359,874
ekkarill92 answered 2 years agoRelated Solutions
Question) On 1 July 2020, Tierny issues 5,000 convertible notes to enable construction of a facility...
Question) On 1 July 2020, Tierny issues 5,000 convertible notes
to enable construction of a facility to train security guards. The
notes have a three year term and are issued at par with a FV of
$10,000 per note, giving total proceeds at the date of issue of $50
million. The notes pay a coupon of 6% p.a. annually in arrears
(payable 30/6). The holder of each note has the option to convert
the note into 5,000 ordinary shares of...
ABC Ltd is an Australian company issued $10 million convertible notes on 1 July 2019 that...
ABC Ltd is an
Australian company issued $10 million convertible notes on 1 July
2019 that carry a nominal interest (coupon) rate of 5% per annum.
They are redeemable on 30 June 2022 for cash or can be exchanged
for ordinary shares in ABC Ltd on the basis of 20 shares for each
$100 of note. The prevailing market interest rate for the notes
without conversion options are 8%.
When preparing the
draft financial statements for the year ended 30...
ABC Ltd is an Australian company issued $10 million convertible notes on 1 July 2019 that...
ABC Ltd is an
Australian company issued $10 million convertible notes on 1 July
2019 that carry a nominal interest (coupon) rate of 5% per annum.
They are redeemable on 30 June 2022 for cash or can be exchanged
for ordinary shares in ABC Ltd on the basis of 20 shares for each
$100 of note. The prevailing market interest rate for the notes
without conversion options are 8%.
When preparing the
draft financial statements for the year ended 30...
ABC Ltd is an Australian company issued $10 million convertible notes on 1 July 2019 that...
ABC Ltd is an
Australian company issued $10 million convertible notes on 1 July
2019 that carry a nominal interest (coupon) rate of 5% per annum.
They are redeemable on 30 June 2022 for cash or can be exchanged
for ordinary shares in ABC Ltd on the basis of 20 shares for each
$100 of note. The prevailing market interest rate for the notes
without conversion options are 8%.
When preparing the
draft financial statements for the year ended 30...
On January 1, 2018, CT Ltd issued $20 million convertible bonds. The bonds have a life...
On January 1, 2018, CT Ltd issued $20 million convertible bonds.
The bonds have a life of three years and are issued at 21 million
with a face value of $100 per bond. The bonds pay an interest of 6%
annually in arrears. The holder of each bond is entitled to convert
the bond into 25 ordinary shares of CT Ltd at any time up to
maturity.
Companies of a similar risk profile have recently issued debt
with similar terms,...
In July 2020, Worley Ltd calls for public subscriptions for 20 million shares. The issue price...
In July 2020, Worley Ltd calls for public subscriptions for 20
million shares. The issue price per share is $1.20, to be paid in
three parts, these being $0.50 on application, $0.40 within one
month of the shares being allotted and $0.30 within two months of
the first and final call, with the call for final payment being
payable on 1 September 2020. By the end of July, when applications
close, applications have been received for 24 million shares; that...
on 1 july 2018 power ltd issues $10 million in five year denentures that pay interest...
on
1 july 2018 power ltd issues $10 million in five year denentures
that pay interest each 6 months at coupon rate of 5%. at the time
of issuing the securities the market requires a raye of return of
8%. interest expense id determined using the effective interest
method.
required:
a) determine if the debenture is issued premium or
discount?
b) determine the fair value of the debentures?
corporation and financial accounting
On 1 July 2015 Kruger Ltd privately issues $1 million in six-year debentures, which pay interest...
On 1 July 2015 Kruger Ltd privately issues $1 million in
six-year debentures, which pay interest each six months at a coupon
rate of 6 per cent per annum. At the time of issuing the
securities, the market requires a rate of return of 4 per cent.
Consistent with the requirements of AASB 9, the debentures are
accounted for using the effective interest method. Required (a)
Determine the fair value of the debentures at the time of issue
(which will...
On 1 July 2018 BMW Ltd issues $2 million in 10-year debentures that pay interest each...
On 1 July 2018 BMW Ltd issues $2 million in 10-year debentures
that pay interest each six months at a coupon rate of 10 per cent.
At the time of issuing the securities, the market requires a rate
of return of 12 per cent. Interest expense is determined using the
effective-interest method. .
Formula for PV of $1 in n periods =1/(1+k)n
Formula for present value of annuity of $1 per period for n
periods = 1-1/(1+k)n/k where, k is...
On 1 July 2022 Bombo Ltd issues $2 million in six-year bonds that pay interest every...
On 1 July 2022 Bombo Ltd issues $2 million in six-year bonds
that pay interest every six months at a coupon rate of 8 per cent.
At the time of issuing the securities, the market requires a rate
of return of 6 per cent. Interest expense is determined using the
effective-interest method.
Required
(a) Determine the issue price.
(b) Provide the journal entries at the dates below by showing
relevant calculations in a table form.
(i) 1 July 2022
(ii)...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
ADVERTISEMENT