Which statement best describes the "proportional method"?
A)Under this method of accounting,for a convertible bond,all of the bond value would be counted as a liability.
B)Under this method of accounting,for a convertible bond,the issuing entity would record a liability for the estimated value of the bond without the conversion feature.
C)Under this method of accounting,for a convertible bond,an estimate would be made of the fair value of all components and allocated proportionally to all components.
D)Under this method of accounting,the common share component is considered the least reliably measured amount.

Question

Quizplus · Accepted Answer

The proportional method for accounting for convertible bonds involves estimating the fair value of all components, including the liability and equity components, and allocating them proportionally based on their relative fair values. This method is used when the fair value of the embedded conversion option cannot be reliably measured. Therefore, option C best describes the proportional method. Options A and B are incorrect because they do not involve accounting for the equity component of the convertible bond. Option D is incorrect because it is not specific to the proportional method and is not directly related to accounting for convertible bonds.

Which Statement Best Describes the "Proportional Method