Patrick Rach International issued 5% bonds convertible into shares of the company's common stock. Rach applies U.S. GAAP. Upon i

Question

3 years ago

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Patrick Rach International issued 5% bonds convertible into shares of the company's common stock. Rach applies U.S. GAAP. Upon i

ssuance, Patrick Rach International should record:-The proceeds of the bond issue as part debt and part equity-The proceeds of the bond issue entirely as debt-The proceeds of the bond issue entirely as equity-The proceeds of the bond issue entirely as debt if the bonds are mandatorily redeemable

Business

1 answer:

Ludmilka [50] · Answer 1 · 2022-03-02T09:00:49+03:00

Answer:

The correct answer is letter "B": The proceeds of the bond issue entirely as debt.

Explanation:

Under the U.S. General Accepted Accounting Principles (GAAP) the issuance costs of bonds are ignored for reporting purposes but the amount of sales revenues is recorded as debt. The amortization of the bond can be calculated using the effective interest method or the straight-line method.