Question

Comet Products prepares its financial statements according to International Financial Reporting Standards (IFRS). On January 1, 2018. Comet Products issued $80 million of 6%, 10-year convertible bonds at a net price of $81.6 million. Comet recently issued similar, but nonconvertible, bonds at 99 (that is. 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Comet's no par common stock. Comet records interest by the straight-line method. On June 1, 2020, Comet notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2020. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Comet paid the semiannual interest and issued the requisite number of shares for the bonds being converted, Required: 1. Prepare the journal entry for the issuance of the bonds by Comet. 2. Prepare the journal entry for the June 30, 2018, interest payment. 3. Prepare the journal entries for the June 30, 2020, interest payment by Comet and the conversion of the bonds (book value method).

Answer 1

1. Statement showing Journal entru for the Issuance of bonds by Comet

Jan 1 2018	Cash A/c Dr	$ 81.6
	To Bonds Holders A/c		$81.6
	(Being Bond money received )
	Bonds Holders A/c Dr	$81.6
	To 6% Convertible Bonds A/c		$80
	To security Premium A/c		$1.6
	(Being bond issued at premium and transfered to bond A/c)
	security Premium A/c	$1.6
	To profit / loss appropriation A/c		$1.6
	( bein premium trasfered to p/l)
	Cash A/c Dr	$79.2
	To Bond Holders A/c		$79.2
	(Being Bond money received )
	Bond Holders A/c Dr	$79.2
	Discount on Issuance of Bonds A/c	$0.8
	To 6% Non convertible bonds A/c		$80
	( being bonds issued On discount)
	discount on bonds will be amortised @0.8 in 10 years equally

2 Statement Showing Journal entry for june 2018 , Interest Payment

30 June	6% convertible Bonds Interest A/c (80*6%*6/12)	$2.4
2018	To Bonds holders A/c		$2.4
	( Being Interest due )
	Bond Holders A/c Dr	$2.4
	To cash A/c		$2.4
	( Being Interest Paid to convertible bond holders )
	6% non convertible Bonds Interest A/c (80*6%*6/12)	$2.4
	To bond Holders A/c		$2.4
	Bond Holders A/c Dr	$2.4
	To cash A/c		$2.4
	( Being Interest Paid to non convertible bond holders )

3 statement showing Journal entries for june 30 2020

30 June	6% convertible Bonds Interest A/c (80*6%*6/12)	$2.4
2020	To Bonds holders A/c		$2.4
	( Being Interest due )
	Bond Holders A/c Dr	$2.4
	To cash A/c		$2.4
	( Being Interest Paid to convertible bond holders )
	6% non convertible Bonds Interest A/c (80*6%*6/12)	$2.4
	To bond Holders A/c		$2.4
	Bond Holders A/c Dr	$2.4
	To cash A/c		$2.4
	( Being Interest Paid to non convertible bond holders )

30 june	6% convertible Bonds	$80
2020	To Bonds holders A/c		$80
	( being amt transfered for conversion )
	bond Holders A/c dr	$80
	To Equity share capital		$80
	( being $1000 bonds i.e80000 are converted into 2.4 million equity shares)