Question

ABC Inc issued $6 million of 10-year, 9% convertible bonds on June 1, 2018. These bonds were issued at 98 plus accrued interest. The bonds were dated April 1, 2018, with interest payable April 1 and October 1. Bond discount is amortized semi-annually. Similar bonds without the conversion privileges would have sold at 97 plus accrued interest. On April 1, 2018, $1.5 million of these bonds were converted into 30,000 common shares. Accrued interest was paid in cash at the time of conversion but only to the bondholders whose bonds were being converted. Assume that the company follows IFRS.

Required: (Please included calculations)

1. Prepare the entry to record the issuance of the convertible bonds on June 1, 2017.
2. Prepare the entry to record the interest expense at October 1, 2018 by pro-rating the number of months. Assume that interest payable was credited when the bonds were issued.
3. Prepare the entry(ies) to record the conversion on April 1, 2019. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
4. 4) What do you believe was the likely fair value of the common shares as at April 1, 2019?

Answer 1

Date	Journal	Debit	Credit
June 1, 2018	Bank Acoount Dr (60,00,000 * 98/100)	5880000
	Discount on issue of debentures a/c dr (60,00,000 * 2/100)	120000
	To 9% Convertiable bonds a/c		60,00,000
October 1, 2018	Interest payable A/c dr (30,00,000*9/100*2/12)	45000
	Interest expense A/c dr (30,00,000*9/100*4/12)	90000
	To bank A/c		135000
Dec 1st 2018	Profit & loss A/c Dr	150000
	To Discount on issue of debentures A/c (1,20,000/2)		60000
	To interest exp a/c		90000
Apr 1, 2019	Interest exp a/c dr (60,00,000*9/100*6/12)	270000
	To bank a/c		270000
Apr 1, 2019	9% Convertiable bonds a/c	1500000
	To common stock(30000*10)		300000
	To security premium(30000*40)		1200000
	(15,00,000/30000=50)

Note: due to non given details regarding common stock par value taken as 10$ per stock and also dates are not properly given in the question, please check and update as well.