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, estimate the fair value of all components and allocate proportionally to them.
D)Under this method of accounting, the common share component is considered the least reliably measured amount.

Question

Quizplus · Accepted Answer

The "proportional method" involves estimating the fair value of all components of a convertible bond (both the debt and equity components) and then allocating the proceeds from the bond issuance proportionally based on these estimated values.

Which Statement Best Describes the "Proportional Method