Question

On January 2, 2012, Farr Co. issued 10-year convertible bonds at 105. During 2012, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2012, cash proceeds from the issuance of the convertible bonds should be reported as

Answer 1

Answer: Loan stock

Step-by-step explanation:

A firm can fund his business from third parties either by issuing an equity stock or a loan stock.

An equity stock holders are owners of the company and are entitled to returns refered to as dividend after all other stake holders have virtually been paid especially if its a common stock holders, funds are raised by selling stocks to them.

A loan stock holder is a creditor to the company and they received Interest on thier investment, though they can convert their investment to equity stock. Funds are raised from them by issuing bonds to them.

This is the basis for the above answer.