A Company Issues Convertible Bonds with Face Value of $5,000,000

question 36

Essay

A company issues convertible bonds with face value of $5,000,000 and receives proceeds of $6,500,000. Each $1,000 bond can be converted, at the option of the holder, into 80 common shares. The underwriter estimated the market value of the bonds alone, excluding the conversion rights, to be approximately $6,300,000.
Required:
Record the journal entry for the issuance of these bonds based on IFRS.

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Definitions:

Available-For-Sale Securities

Financial assets held by a firm that can be sold in the financial markets, not classified as held-to-maturity or trading securities.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities.

Trading Securities

Financial assets that a firm holds primarily for the purpose of selling them in the short term to profit from price fluctuations.

Adjusting Entries

Entries made at the end of an accounting period to ensure that companies follow the revenue recognition and expense recognition principles.