Convertible Bonds

Question 1

What portion of bond proceeds do we allocate to conversion feature for bonds?

Answer 1

-None under US GAAP

Question 2

Describe the two methods of accounting for convertible bonds?

Answer 2

• Book Value Method: Remaining book value of bonds transferred to PIC and APIC accounts. No gain/loss
• Market Value Method: Market value of stock or bonds, whichever more easily determinable transferred to PIC and APIC, gain/loss

Question 3

How are induced conversions treated?

Answer 3

-Expenses in excess of original terms