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Accounting Principles Board (APB) Opinion No.
14
a. Accounting for
Convertible Debt and
Debt Issued with Stock Purchase Warrants
b. Issued in March 1969
Convertible debt
securities
--> Debt securities that can be converted into common stock (of the
issuer)
Convertible debt
securities
--> should be treated solely as debt
--> no separate
recognition for conversion option.
--> because
conversion option is
not separable from convertible debt.
Convertible debt
securities are
--> either converted (into common stock) or
--> redeemed for
cash.
--> conversion
right cannot be sold separate from debt.
Proceeds
of
convertible debt
-->
No proceeds of convertible debt
are attributable to the conversion option.
Debt with detachable
stock purchase warrants
--> Proceeds are allocated to two components.
a. debt security
b. warrants
Allocation is based on
--> a. fair value of debt securities without warrants
b. fair value of warrants
Portion of proceeds
allocated to debt security
--> recorded as liability.
Portion of proceeds
allocated to warrants
--> recorded as additional paid-in capital.
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