Question

On January 1, 2018, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 10% of the issue as an investment. Required: Assume Gless Textiles prepares its financial statements according to International Financial Reporting Standards. Prepare the journal entry for the issuance of the bonds by Gless using the net method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

Solution:- Journal Entries

Date	Particulars	Amount	Amount
	Cash	$12,120,000
	Convertible bonds payable		$11,880,000
	Equity Conversion option		$240,000

Calculation :-

Cash (101% × $12,000,000) = $12,120,000

Convertible bonds payable (99% × 12,000,000) = $11,880,000

Equity Conversion option (Balancing figure) = $240,000