Question

Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?

Answer 1

A warrant is a warrant that gives the holder the right to buy at a fixed price at a specified price in the underlying period. The warrant holder can be removed several times in combination with the various loan offers and can be sold separately in the secondary location market. However, an investor who holds an interchangeable warrant for an investor may retain the security.

Can be transferred to common stock issued at a price issued by the policy of the holder and may be sold at that price, or face value is not more than the amount owed. In general, the lower the interest rate for a convertible loan, the higher the initial conversion price will be above the market price of the common stock at the time of issuance.

When an organization is offering a replacement loan, it is expected that bond repayments are not possible. So instead it will be extinguished in the company’s common stock. Replacement bonds are usually callable, which makes a bond call to the issuing company. When the market price of common stock appears to be higher than the value of the call of the bond, it is worthwhile to convert the bonds into common stock because of the call on the bonds.

The purpose of the Consolidated Statements in the Financial Accounting Standards Board is to first present the interests of the stakeholders. And to know the financial status of the parent and the creditor of the parent company, the company is basically a single company with more branches. There is a perception that consolidated statements appear to be more meaningful than separate. Usually when a subsidiary in a company is required to be presented in due course, the Financial Accounting Standards Board displays the financial control of the group, directly or indirectly.