Problem 7-1

Jan-01 Cash 6,000,000

Bond Payable 5,000,000
Premium 735,000
Share Warrant Outstanding 265,000

Issue price of bonds with warrants 6,000,000

Market Value of bond without warrants 5,735,000
Residual Amount Allocated to Warrants 265,000

Dec-31 Interest Expense 400,000

Cash 400,000

Premium 55,900
Interest Expense 55,900

Cash 600,000
Share Warrants Outstanding 265,000
Share Capital 500,000
Share Premium 365,000

Problem 7-2
Jan-01 Cash 5,100,000
Discount 343,000
Bond Payable 5,000,000
Share Warrant Outstanding 443,000

Dec-31 Interest Expense 651,980

Cash 600,000
Discount 51,980

Cash 2,500,000
Share Warrants Outstanding 443,000
Share Capital 1,250,000
Share Premium 1,693,000

Problem 7-3
Principal 8,000,000
Normal Rate 12% 6%
Effective Rate 10% 5%
Maturity Date - Principal 8,000,000
Period 5 years 10 Interest 480,000
Payable Semi-annually June 30 and December 31

Date Interest Payment Interest ExpenseAmortization Carrying Amount

01/01/20x1 8,585,600
06/30/20x1 480,000 429,280 50,720 8,534,880
12/31/20x1 480,000 426,744 53,256 8,481,624
 Jan-01 Cash 9,600,000
Bond Payable 8,000,000
Premium 585,600
Share Warrant Outstanding 1,014,400

Jun-30 Interest Expense 429,280

Premium 50,720
Cash 480,000

Dec-31 Interest Expense 426,744

Premium 50,720
Cash 480,000

Cash 2,400,000
Share Warrants Outstanding 1,014,400
Share Capital 1,600,000
Share Premium 1,814,400

Problem 7-8
PV of Principal 2,000,000 1 1,540,000
PV of Interest 120,000 3 303,600
Total Present Value 1,843,600

Discount on Bonds 2,000,000 1,843,600 156,400

Jan-01 Cash 2,200,000

Discount 156,400
Bond Payable 2,000,000
Share Premium - conversion 356,400

Interest Expense 165,924

Cash 120,000
Discount 45,924

Dec-31 Bond Payable 2,000,000

Share Premium - conversion 356,400
Discount 110,476
Share Capital 1,000,000
Share Premium - Issuance 1,245,924

Problem 7-5
Cash 5,250,000
Discount 300,000
Bond Payable 5,000,000
Share Premium - conversion 550,000

Interest Expense 658,000

 Discount 58,000
Cash 600,000

Bond Payable 5,000,000

Discount 242,000
Share Premium - conversion 550,000
Total Consideration 5,308,000
Par Value of Share Capital Issued 4,000,000
Share Premium Issuance 1,308,000

Bond Payable 5,000,000

Share Premium - Conversion 550,000
Discount 242,000
Share Capital 4,000,000
Share premium - Issuance 1,308,000

Problem 7-6
Bond Payable 5,000,000
Share Premium - conversion 500,000
Premium 250,000
Share Capital 2,500,000
Share Premium 3,250,000

Share Premium - Issuance 200,000

Cash 200,000

Problem 7-7
PV of Principal 4,000,000 1 3,160,000
PV of Interest 240,000 3 619,200
Total Present Value 3,779,200

Discount on Bonds 4,000,000 3,779,200 220,800

Issue price of bonds with warrants 4,200,000

Market Value of bond without warrants 3,779,200
Residual Amount Allocated to Warrants 420,800

Cash 4,200,000
Discount 220,800
Bond Payable 4,000,000
Share Premium - Conversion 420,800

Bonds Payable 4,000,000

Interest Expense 240,000
Cash 4,240,000

Share Premium - Conversion 420,800

Share Premium - Issuance 420,800
Problem 7-8
FV w/ conversion privilege 5,550,000
FV w/o conversion privilege 5,400,000
EFV of equity Component 150,000

Carrying Amount 5,178,000

Payment equal to FV w/o CP 5,400,000
Loss on Extinguishment 222,000

Req 1 Cash 6,000,000

Bond Payable 5,000,000
Premium 399,300
Share Premium - Conversion 600,700

Req 2 Bond Payable 5,000,000

Premium 178,000
Share Premium 150,000
Loss on Extinguishment 222,000
Cash 5,550,000

Interest Expense 500,000

Cash 500,000

Share Premium - Conversion 450,700

Share Premium - Issuance 450,700
 Present Value
0.61 4,880,000
7.72 3,705,600
8,585,600