How to Account for Convertible Debt (U.S. GAAP)

Convertible debt is debt that can be converted into other securities, such as common stock. Investors prefer convertible debt when they want regular cash flows (from the interest) but the chance to obtain equity if the company's value increases significantly. The borrower benefits by (1) getting a lower interest rate on the debt and (2) not having to give up as many shares of equity (had the company raised the money with an equity issuance).

Under U.S. GAAP, convertible debt is typically treated as a liability by the borrower.
—
Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD.
Edspira’s mission is to make a high-quality business education accessible to all people.
—
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS & OTHER FREE GUIDES
http://eepurl.com/dIaa5z
—
MICHAEL’S STORY
https://www.edspira.com/about/
—
LISTEN TO THE SCHEME PODCAST
Apple Podcasts: https://podcasts.apple.com/us/podcast...
Spotify: https://open.spotify.com/show/4WaNTqV...
Website: https://www.edspira.com/podcast-2/
—
CONNECT WITH EDSPIRA
Website: https://www.edspira.com
Instagram:   / edspiradotcom  
LinkedIn:   / edspira  
Facebook:   / edspira  
Reddit:   / edspira  
*TikTok:   / edspira  
—
CONNECT WITH MICHAEL
LinkedIn:   / prof-michael-mclaughlin  
Twitter:   / prof_mclaughlin  
Instagram:   / prof_mclaughlin  
Snapchat:   / prof_mclaughlin  
*TikTok:   / prof_mclaughlin  
—
HIRE MCLAUGHLIN CPA
Website: http://www.MichaelMcLaughlin.com/hire-me