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Q1: Suppose a Convertible Bond with a Face (i.e., Par) Value of $3,000,000 is issued at Par (i.e., at 100). The Convertible Bonds are repurchased (i.e., repaid) at maturity. When the Convertible Bonds were issued, the Equity component was valued at $1,000,000. The Journal Entry to record the repurchase of the Convertible Bonds at maturity is:

a. Debit: Bonds Payable, $2,000,000. Credit: Cash, $2,000,000

b. Debit: Cash, $3,000,000. Credit: Bonds Payable, $3,000,000

c. None of these answers

d. Debit: Bonds Payable, $3,000,000. Credit: Cash, $3,000,000

e. Debit: Bonds Payable, $1,000,000. Credit: Cash, $1,000,000

Q2: Suppose a Convertible Bond with a Face (i.e., Par) Value of $1,000,000 is issued at 97 for Cash. The fair value (i.e., Present Value of future cash flows) of the Debt Component at the date of issue is $850,000. The Journal Entry to record this Convertible Bond issue will include:

a. A Credit entry to Share Premium Conversion Equity of $1,850,000

b. A Debit entry to Share Premium Conversion Equity of $150,000

c. A Credit entry to Share Premium Conversion Equity of $120,000

d. None of these answers

e. A Credit entry to Share Premium Conversion Equity of $250,000

Q3: Suppose a firm issues a single bond with a face value of $100,000 which is Convertible into 10,000 Ordinary Shares with a Par Value of $1. The credit entry to Share Premium Conversion Equity on the date of issue was for $20,000. Assume that the maturity date of the bonds has now arrived and the bonds will be converted into Ordinary Shares.

The Debit Entry to the Bonds Payable account on the date of conversion will be for an amount of:

Q4: Suppose a Convertible Bond with a Face Value of $100 million is issued at Par. The fair value (i.e., Present Value of future cash flows) of the Debt Component at the date of issue is $80 million. The Journal Entry to record this Convertible Issue will include:

a. A Credit entry to Share Premium Conversion Equity of $20 million

b. None of these answers

c. A Debit entry to Share Premium Conversion Equity of $20 million

d. A Credit entry to Share Premium Conversion Equity of $80 million

e. A Credit entry to Share Premium Conversion Equity of $80 million

Q5: Suppose a Convertible Bond with a Face (i.e., Par) Value of $1,000,000 is issued at 97 for Cash. The fair value (i.e., Present Value of future cash flows) of the Debt Component at the date of issue is $850,000. What is the present value of the Equity component?

a. $1,850,000

b. $120,000

c. $250,000

d. None of these answers

e. $150,000

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