Question

Wildhorse Inc. issued $7.0 million of 10-year, 9%, convertible bonds on June 1, 2017 at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually. Bonds without conversion privileges would have sold at 97 plus accrued interest. On April 1, 2018, $1.75 million of these bonds were converted into 35,000 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. Prepare the entry to record the interest expense at October 1, 2017 by pro-rating the number of months. Assume that interest payable was credited when the bonds were issued.

Answer 1

Account Titles & explanations Date Debit Credit 12 2017 13 1-Oct Bond Interest payable (315000 2/6) Bond Interest expense (315000 4/6)+4746 7,000,000 105,000 214,746 14 Par Value 15 Issuance Price 6,860,000 Bond Discount 4,746 315,000 Total Discount 140,000 16 Cash (7000000*9% /2) 17 Months remaining 18 118 Bonds payable 19 b) 1,750,000 Discount per month 1.186 Discount on Bonds Payable Discount amortized 20 32,034 4,746 Common Stock 1,717,966 (1186 4) 21 22 Discount related to (1750000/7000000) 1/4of the bonds (140000 1/4) Less Discount amortized (35000 118 *10) Unamortized Bond Discount 23 24 35,000 25 2,966 32,034 26 27 28