Which statement best describes the "incremental 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 most reliably measured amount.

Question

Quizplus · Accepted Answer

The incremental method involves recording a liability for the estimated value of the bond without the conversion feature, with any additional value given to the bond by the conversion feature being recorded as equity. This method separates the debt and equity components based on the value of the bond as if it did not have the conversion option.

Which Statement Best Describes the "Incremental Method