LMN Company Reported the Following Amounts on Its Balance Sheet

question 73

Essay

LMN Company reported the following amounts on its balance sheet at July 31,2013:
Liabilities
Equity
Preferred shares,no par,3,000,000 shares authorized,10,000
Common shares,no par,1,000,000 shares authorized,180,000
Additional information
1.The bonds pay interest each July 31.Each $1,000 bond is convertible into 10 common shares.The bonds were originally issued to yield 10%.On July 31,2014,all the bonds were converted after the final interest payment was made.LMN uses the book value method to record bond conversions as recommended under IFRS.
2.No other share or bond transactions occurred during the year.
Requirement:
a.Prepare the journal entry to record the bond interest payment on July 31,2014.
b.Calculate the total number of common shares outstanding after the bonds' conversion on July 31,2014.
c.Prepare the journal entry to record the bond conversion.

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Definitions:

Net Income

The residual financial gain of a company post all expenditures and taxes being deducted from its revenues.

Book Value

The value left over from a company’s assets once its obligations are deducted, as listed on the balance sheet.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee but not control those policies.

Net Income

Net income is the profit a company makes after deducting all its costs, expenses, interest, and taxes from its total revenues.