If an Entity Issued a Convertible Note at a Price

question 67

Multiple Choice

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

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Definitions:

Income Statement

A financial document that shows a company's revenues and expenses over a specific period, illustrating profitability.

Working Capital Ratio

The amount of current assets that would remain if all a company’s current liabilities were paid immediately; total current assets / total current liabilities.

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

Income Statement

a financial statement that shows a company's revenues and expenses, and thus its profit or loss, over a specific period of time.