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Mae Jong Corp

question 53

Multiple Choice

Mae Jong Corp.issues 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000) .Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.When Mae Jong records the issuance of these bonds, how much will it credit to Share Premium-Conversion Equity? The following present value factors are available:

Definitions:

Bad Debt Expense

An income statement item reflecting the cost associated with the estimated uncollectible accounts receivable.

Allowance for Doubtful Accounts

An estimate of the amount of accounts receivable that may not be collected, recognized as a contra asset account.

Cash Realizable Value

The net amount of cash expected to be received from receivables, after accounting for allowances for doubtful accounts.

Accounts Receivable

Debts owed by customers to a company for delivered goods or performed services that remain unpaid.