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Hello Chris!
Need your help to tackle a question (SANDOWN note 3)
In the trial balance as @ 30 Sep 2009, there i
-5% convertible loan note 2012 $18,440
-Equity options $2000-The 5% convertible loan note was issued for proceeds of $20M on 1 Oct 2007. It has an effective interest rate of 8% due to the value of its conversion option, and can be converted into 50 shares for every $100 owed.
1. I’ve calculated the minimum cash payments associated with associated the loan which is $15,435.00 deduct that present value from the $20,000 and got $4,565.00 equity
2.How come in the question,they’ve got $18,440 as the and $2000?
Hi,
You don’t need to calculate the present value of the minimum payments and then work out the equity as a balancing figure as this has already been done for you.
If you not the dates, the reporting date is September’09 and the convertible was issued two years ago on 1 October’07, so they’ve recorded it correctly initially.
All you need to do in answering the question is to record the interest expense at 8% on the outstanding liability and work out the value in the SFP.
Thanks
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