On January 2, 2014, Farr Co. issued 10-year convertible bonds at 105. During 2014, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2014, cash proceeds from the issuance of the convertible bonds should be reported as

Question

Quizplus · Accepted Answer

The cash proceeds from the issuance of the convertible bonds should be reported as a liability for the entire proceeds because the bonds are initially recognized as a liability until conversion occurs.