Intermediate Accounting 2 questions and 100% correct answers

1. raise equity capital without giving up more control of co. 2. obtain financing at cheaper rates - correct answer Why do companies issue convertible bonds? Dilutive securities - correct answer Convertible securities as well as options, warrants, and other securities that reduce EPS Convertible bonds - correct answer bonds that can be changed into other corporate securities during some specified period of time after issuance. Liabilities Recording convertible bonds at date of issue - correct answer none of the proceeds are recorded as equity, companies amortize to the maturity date any discount or premium that results from the issuance of convertible bonds Recording at time of conversion - correct answer using the book value method, securities exchanged for the bond at the carrying amount of the bond. " since at the date of issuance, there is an agreement to pay the stated amount of cash at maturity, no loss or gain is recognized Induced conversions - correct answer When the issure wishes to encourage coversion of debt in order to reduce interest cost or improve Debt/equity ratio. they can offer additional consideration (cash or common stock) called a sweetner How to record sweetners - correct answer additional compensations are recorded as an expense to the current period and not as a reduction of equity or as an extrodinary item Retirement of convertible debt - correct answer report differences between the cash acquistion price of debt and its carrying amount in current income as a gain or loss Convertible preferred stock - correct answer includes an option for the holder to convert the shares into a fixed number of common stock. part of stockholders equity Accounting for converitble preferred stock - correct answer book value method: debits preferred stock and any related PIC in excess of par - preffered. and it credits common stock and PIC in excess of par - common stock. different when par value exceeds book: then you debit retained earnings for difference. (because it is considered additional return)