Question

On January 1, 2020, Wildhorse Ltd. issued 870 5-year, 10% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6. Similar straight bonds carry an interest rate of 12%.

Calculate the PV of the debt component by itself. Calculate using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function PV. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 5,275.)

PV of the debt component _________

How should Wildhorse record the issuance if it follows IFRS? Use the amount you arrived at in part (a) using a financial calculator or Excel. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit January 1 enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount . How should Wildhorse record the issuance if it follows ASPE? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit January 1 enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount

Answer 1

	Period	Cashflows	PV factor @12%	Present value
	1	87000	0.89286	$77,679
	2	87000	0.79719	$69,356
	3	87000	0.71178	$61,925
	4	87000	0.63552	$55,290
	5	87000	0.56743	$49,366
			Debt portion	$313,616
IFRS
Date	Account titles and explanation	Debit	Credit
01-Jan	Cash	$870,000
	10% convertible bond		$313,616
	Share premium - Equity Conversion		$556,384
	(compound bond issued)
ASPE
	Cash	$870,000
	10% convertible bond		$870,000
	(bond issued)