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Chapter 16: Q10IFRS (page 896)

Question: Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value ordinary shares. The bonds are converted on December 31, 2017. The bonds payable has a carrying value of \(1,950,000 and conversion equity of \)20,000. Record the conversion using the book value method.

Short Answer

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Answer

Cash will be debited by $20,000 and bonds payable by $1950,000, and share capital will be credited by $1,000,000 and share premium will be credited by $970,000.

Step by step solution

01

Introduction to bond payable

It is a liability account that records the long-term debt which occurs when a company issues bonds to generate cash and thus bonds payable are recorded.

02

Journals

Date

Accounts and Explanations

Debit

Credit

Cash

$20,000

Bond Payable

$1,950,000

Share capital (2,000 x 50 x$10)

$1,000,000

Share premium (Bal. fig.)

$970,000

Being the conversion is recorded

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Most popular questions from this chapter

Question: . Mae Jong Corp. issues \(1,000,000 of 10% bonds payable which may be converted into 10,000 shares of \)2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000. In accounting for these bonds, Mae Jong Corp. will:

(a) first assign a value to the equity component, then determine the liability component.

(b) assign no value to the equity component since the conversion privilege is not separable from the bond.

(c) first assign a value to the liability component based on the face amount of the bond.

(d) use the “with-and-without” method to value the compound instrument.

What are the arguments for giving separate accounting recognition to the conversion feature of debentures?

On January 1, 2017 (the date of grant), Lutz Corporation issues 2,000 shares of restricted stock to its executives. The fair value of these shares is \(75,000, and their par value is \)10,000. The stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare the journal entry (if any) on January 1, 2017, and on December 31, 2017, assuming the service period is 3 years.

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

How is antidilution determined when multiple securities are involved?
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