The Incremental Method to Accounting for Convertible Bonds Means That

question 85

Multiple Choice

The incremental method to accounting for convertible bonds means that:

• A)The proceeds of the bond are allocated on the basis of the book values of the straight bond and imbedded stock option
• B)The proceeds of the bond are allocated on the basis of the relative market values of the straight bond and imbedded stock option
• C)The stock option is valued at the difference between the total proceeds of the bond issue and the market value of an equivalent straight bond issue
• D)None of these answers are correct

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenses to the period in which they actually occurred.

Equity Interest

Ownership interest in a company, usually in the form of stocks, representing a share of the earnings and assets of the business.

Cash Dividend

A payment made by a corporation to its shareholders, usually in the form of cash.

Net Income

The profit a company retains after all financial obligations, like costs and taxes, are subtracted from its total income.