Blossom Inc. has $3 million of 6% convertible bonds outstanding. Each $1,000 bon
ID: 2516138 • Letter: B
Question
Blossom Inc. has $3 million of 6% convertible bonds outstanding. Each $1,000 bond is convertible into 30 no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2017, the holders of $780,000 of these bonds exercised the conversion privilege. On that date, the market price of the bonds was 107, the market price of the common shares was $40, the carrying value of the common shares was $20, and the Contributed Surplus - Conversion Rights account balance was $494,000. The total unamortized bond premium at the date of conversion was $231,000. The remaining bonds were never converted and were retired when they reached the maturity date. Assume that the company follows IFRS.
Assuming that the book value method was used, record the conversion of the $780,000 of bonds on July 31, 2017.
Prepare the journal entry that would be required for the remaining amount in Contributed Surplus—Conversion Rights when the maturity of the remaining bonds is recorded.
Blossom Inc. has $3 million of 6% convertible bonds outstanding. Each $1,000 bond is convertible into 30 no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2017, the holders of $780,000 of these bonds exercised the conversion privilege. On that date, the market price of the bonds was 107, the market price of the common shares was $40, the carrying value of the common shares was $20, and the Contributed Surplus - Conversion Rights account balance was $494,000. The total unamortized bond premium at the date of conversion was $231,000. The remaining bonds were never converted and were retired when they reached the maturity date. Assume that the company follows IFRS.
Assuming that the book value method was used, record the conversion of the $780,000 of bonds on July 31, 2017.
Prepare the journal entry that would be required for the remaining amount in Contributed Surplus—Conversion Rights when the maturity of the remaining bonds is recorded.
Explanation / Answer
SOLUTION:
1 Contributed Surplus - conversion rights 128,440 Bonds payable 840,060 Common shares 968,500 Working: Premium as of July 31 for 3,000,000 of bonds 231,000 Face value of bonds converted 3,000,000 Carrying value of bond converted 3,231,000 780,000 / 3,000,000 * 3,231,000 = 840,060 780,000 / 3,000,000 * 494,000 = 128,440 2 Contributed Surplus – Conversion Rights 365,560 Contributed Surplus – Conversion Rights Expired 365,560 Working: 494,000 - 128,440 = 365,560