On January 2,2014,Zamarano,Inc

question 125

Essay

On January 2,2014,Zamarano,Inc.issued 5,000 10-year,6%,$1,000 bonds for $5,500,000.Interest is paid each December 31.The market rate of interest for non-convertible bonds is 5%.Each bond is convertible into 25 shares of Zamarano $2 Par Value common stock after two years.The market value of the stock on the date of the issue was $45.On January 2,2018,when the carrying value of the bonds was $5,253,785,all of the bondholders converted the bonds to stock.Zamarano reports under IFRS.
Required:
1.Compute the present value of the bond issue.
2.Prepare the journal entry to record the issuance of the bonds.
3.Record the conversion of the bonds.

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Definitions:

Real Property Taxes

Taxes imposed by local governments on real estate properties based on their assessed value.

Deductible

A cost that can be deducted from total income to lower the taxable income amount.

Charitable Contribution Deduction

A tax deduction that allows taxpayers to deduct donations made to qualifying charitable organizations from their taxable income.

Itemize Deductions

To list allowable expenses that can be subtracted from adjusted gross income to reduce taxable income, rather than taking a standard deduction.