If an entity issued a convertible note at a price of $40.00 and it was determined that a debt instrument of similar risk and rate of interest of 10%-but without the option to convert to equity-could be sold for $32.00,what would be the liability component of the convertible note?
A) $40.00
B) $32.00
C) $44.00
D) $36.00

Question

Quizplus · Accepted Answer

The liability component of the convertible note is determined by the fair value of a similar debt instrument without the conversion option. Since a similar debt instrument could be sold for $32.00, the liability component of the convertible note is $32.00.

If an Entity Issued a Convertible Note at a Price