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ABCD Company issued a Convertible Bond on 1 January 2019. The following information about the Convertible Bond is available:

• Face Value = $2,500,000; Life: 5 years; Interest: Annual on 31 December;
• Issued at Par
• Stated rate (coupon): 5%;
• Assume an effective rate (Yield) of 6% (this is the rate on equivalent non-convertible bonds)
• Convertible Into: 500,000 Ordinary Shares with a par value of $3 each
• The Present Value (PV) Factor for [N=5 and Yield = 6%] is 0.7473. The Annuity Factor [N = 5 and Yield = 6%] = 4.2124 (use these EXACT figures in your calculations)

1. When recording the January 1 2019 transaction, what is the correct journal entry with respect to SHARE PREMIUM - CONVERSION EQUITY?

Select one:

a. No entry required

b. CREDIT $105,200.00

c. CREDIT $101,422.00

d. CREDIT $148,801.00

e. None of these answers

2. Assume that ABCD had no transactions in 2019 other than those based on the information outlined above. How much higher/lower would DOUGLAS COMPANY's cash balance be on 1 January 2020 as compared with 31 December 2018 as a result of the transactions arising from the information outlined above.

Select one:

a. $2,240,000 HIGHER

b. $2,228,000 HIGHER

c. $2,375,000 HIGHER

d. $2,320,000 HIGHER

e. None of these answers

3.

Assume the Bond is Converted into shares at the end of Year 5. On that date, what is the correct journal entry with respect to the SHARE PREMIUM - ORDINARY Account?

Select one:

a. CREDIT $1,087,105.00

b. CREDIT $933,404.75

c. CREDIT $1,105,200.00

d. CREDIT $1,089,250.31

e. None of these answers

4.

Assume the Bond is Converted into shares at the end of Year 5. On that date, what is the correct journal entry with respect to BONDS PAYABLE?

Select one:

a. None of these answers

b. DEBIT $2,445,314.22

c. DEBIT $2,237,509.00

d. DEBIT $2,447,303.47

e. DEBIT $2,500,000.00

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