On January 2,2015,Cannon Company issued $10,000,000 of convertible debt.The bonds are zero-coupon,and each $1,000 bond is convertible into 10 shares of Cannon Company's common stock at the bond holder's option.The bonds mature in 2019 and were issued at par.Companies with similar credit profiles were issuing non-convertible debt at an effective rate of interest of 8%.The present value factor for $1 for 5 periods at 8% is .68058.For each of the following assumptions,prepare the journal entry to record the issuance of debt and entries for 2015 and 2016 to record interest expense.No bonds were converted during 2015 or 2016.
A.
No further entries would be required during 2015 and 2016 under U.S.GAAP.Current GAAP allows Cannon Company to avoid interest expense because the zero-coupon convertible debt and structure of the conversion feature allowed the company to sell the bond for par (face)value.Therefore,no interest expense is recorded over the life of the bond.
A.Cannon Company uses U.S.GAAP to prepare its external financial reporting to shareholders and regulators.
B.

B.Cannon Company uses IFRS to prepare its external financial reporting to shareholders and regulators.

Question

On January 2,2015,Cannon Company issued $10,000,000 of convertible debt.The bonds are zero-coupon,and each $1,000 bond is convertible into 10 shares of Cannon Company's common stock at the bond holder's option.The bonds mature in 2019 and were issued at par.Companies with similar credit profiles were issuing non-convertible debt at an effective rate of interest of 8%.The present value factor for $1 for 5 periods at 8% is .68058.For each of the following assumptions,prepare the journal entry to record the issuance of debt and entries for 2015 and 2016 to record interest expense.No bonds were converted during 2015 or 2016.
A.  
No further entries would be required during 2015 and 2016 under U.S.GAAP.Current GAAP allows Cannon Company to avoid interest expense because the zero-coupon convertible debt and structure of the conversion feature allowed the company to sell the bond for par (face)value.Therefore,no interest expense is recorded over the life of the bond. 
A.Cannon Company uses U.S.GAAP to prepare its external financial reporting to shareholders and regulators.
B.  
  
B.Cannon Company uses IFRS to prepare its external financial reporting to shareholders and regulators.

Quizplus · Accepted Answer

The Answer of On January 2,2015,Cannon Company issued $10,000,000 of convertible debt.The bonds are zero-coupon,and each $1,000 bond is convertible into 10 shares of Cannon Company's common stock at the bond holder's option.The bonds mature in 2019 and were issued at par.Companies with similar credit profiles were issuing non-convertible debt at an effective rate of interest of 8%.The present value factor for $1 for 5 periods at 8% is .68058.For each of the following assumptions,prepare the journal entry to record the issuance of debt and entries for 2015 and 2016 to record interest expense.No bonds were converted during 2015 or 2016.
A.  
No further entries would be required during 2015 and 2016 under U.S.GAAP.Current GAAP allows Cannon Company to avoid interest expense because the zero-coupon convertible debt and structure of the conversion feature allowed the company to sell the bond for par (face)value.Therefore,no interest expense is recorded over the life of the bond. 
A.Cannon Company uses U.S.GAAP to prepare its external financial reporting to shareholders and regulators.
B.  
  
B.Cannon Company uses IFRS to prepare its external financial reporting to shareholders and regulators.

On January 2,2015,Cannon Company Issued $10,000,000 of Convertible Debt