Racquet Ltd Issued $20 Million of Convertible Notes on 1

question 33

Multiple Choice

Racquet Ltd issued $20 million of convertible notes on 1 July 2013.The notes have a life of 6 years and a face value of $20 each.Annual interest of 5% is payable at the end of each year.The notes were issued at their face value and can be converted at any time over their lives.Organisations with a similar risk profile to Racquet Ltd have issued debt with similar terms but without the option to convert at the rate of 7%.What are the appropriate accounting entries to record the conversion of the notes to equity on 1 July 2014 (after interest has been paid and recorded) ?

• A)
• \[\begin{array} { | c | l | r | l | }
• \hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \\
• \hline \text { Dr } & \text { Option to convert notes to equity } & 1906616 & \\
• \hline \mathrm { Cr } & \text { Share capital } & & 20266537 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | c | l | r | r | }
• \hline \text { Dr } & \text { Convertible notes liability } & 18093384 & \\
• \hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \\
• \hline \mathrm { Cr } & \text { Share capital } & & 20000000 \\
• \hline
• \end{array}\]
• C)
• \[\begin{array} { | c | l | r | r | }
• \hline \text { Dr } & \text { Convertible notes liability } & 18359921 & \\
• \hline \mathrm { Dr } & \text { Option to convert notes to equity } & 1906616 & \\
• \hline \mathrm { Cr } & \text { Gain on conversion of options } & & 266537 \\
• \hline \mathrm { Cr } & \text { Share capital } & & 20000000 \\
• \hline
• \end{array}\]
• D)
• \[\begin{array} { | l | l | l | l | }
• \hline \mathrm { Dr } & \text { Convertible notes } & 20000000 & \\
• \hline \mathrm { Cr } & \text { Share capital } & & 20000000 \\
• \hline
• \end{array}\]

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Definitions:

Major Depressive Disorder

A mental disorder characterized by a persistent and intense feeling of sadness or despair and a lack of interest in activities.

Manic Episodes

Periods of abnormally elevated mood, energy, and activity levels, typically seen in bipolar disorder, often resulting in impulsive behavior.

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In the context of bipolar disorder, it refers to having four or more mood episode changes from mania, hypomania, to depression within a twelve-month period.

Major Depression

A mental disorder characterized by persistent sadness, lack of interest in activities, and other symptoms that impair daily functioning.