Bonds

Question 1

Bond sinking funds

Answer 1

investments plus revenues less expenses

Question 2

GAAP interest expense

Answer 2

Carrying value at the beginning of the period x effective periodic interest rate

Question 3

upon conversion of the bonds

Answer 3

the stock issued upon conversion of the bonds is recorded at the carrying value of the converted bonds, not at the amount of the bond discount

Question 4

detachable warrants

Answer 4

DR Cash $ 450,000
DR Discount 70,000
CR Bonds payable $ 500,000
CR APIC Warrants 20,000

Question 5

conversion of the bonds GAAP

Answer 5

The conversion feature is recognized as a component of equity under IFRS. No recognition is given to the conversion feature under U.S. GAAP.

Question 6

conversion of the bonds IFRS

Answer 6

Under IFRS, both a liability (bond) and an equity component (conversion feature) should be recognized when convertible bonds are issued. The bond liability is valued at fair value, with the difference between the actual proceeds received and the fair value of the bond liability recorded as a component of equity.

Question 7

Costs associated with the issuance of bonds

Answer 7

should be capitalized and amortized over the outstanding term of the bonds since issue.
Capitalized costs include:
 Printing and engraving	
 Legal fees	
  Fees to accountants	
  Commissions to underwriter	
 Total capitalized