In Its 2018 Annual Report to Shareholders, Health Foods, Inc

question 72

Essay

In its 2018 annual report to shareholders, Health Foods, Inc., disclosed the following information about some of its indebtedness:

In addition, the company disclosed the following:

We have outstanding zero coupon convertible subordinated debentures which had a book amount of approximately $158.8 million and $151.4 million at September 26, 2018, and September 28, 2017, respectively. The debentures have an effective yield to maturity of 5 percent and a principal amount at maturity on March 2, 2032, of approximately $308.8 million. The debentures are convertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures have a conversion rate of 10.64 shares per $1,000 principal amount at maturity, representing 3,285,632 shares. The debentures may be redeemed at the option of the holder on March 2, 2022, or March 2, 2027, at the issue price plus accrued original discount totaling approximately $188 million and $241 million, respectively.


The fair value of convertible subordinated debentures is estimated using quoted market prices. Book amounts and estimated fair values of our financial instruments other than those for which book amounts approximate fair values as noted above are as follows (in thousands)

-Required: What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2019?

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Definitions:

Decentering

The cognitive ability to consider multiple aspects of a situation or to take another person's perspective, moving beyond self-centric views.

Concrete Operations

A stage in Piaget's theory of cognitive development during which children acquire the ability to think logically about concrete objects and events.

Logical Thought

The process of reasoning in a clear, structured, and consistent manner to arrive at a conclusion based on a set of premises or facts.

Cognitive Development

The process of growth and change in intellectual capabilities that occurs from infancy to adulthood.