Reference no: EM132681843

Questions -

(a) On January 1, 2020 ABC Co. issued 10% 3-year bonds with face value of $5,000,000 at 98. Additionally, ABC Co. paid a bond issue cost of $140,000. After consideration of bond issue costs to the initial measurement, the calculated effective interest rate is 12%. The interest is payable annually on December 31. ABC Co. uses the effective interest method in amortizing discount and issue cost. What is the value of premium or discount on December 31, 2020?

(b) On December 31, 2020, ABC Co. had outstanding 12%, $5,000,000 face value bonds maturing on December 31 2023. Interest was payable semiannually every June 30 and December 31. On December 31, 2020, after amortization was recorded for the period, the unamortized bond discount and bond issue cost were $500,000 and $300,000, respectively. On that date ABC acquired all its outstanding bond on the open market at 98 and retired them. At December 31 2020, what amount should ABC recognize as pretax loss on early extinguishment of bonds?

(c) On January 1, 2020, ABC Company converted its 12%, $1,500,000 face value bonds payable with carrying amount of $1,552,049 for 20,000 ordinary shares with a par value of $50. The bonds were originally issued to yield 10%. The fair value of the bonds on the date of retirement is $1,600,000. Assuming that the bonds are convertible and the share premium from conversion option was $60,000. How much is the gain (loss) on conversion of the bonds to be recognized in the profit or loss during the period?

What are necessary steps to be undertaken? What are the best answers in each situations?