Comet Products Prepares Its Financial Statements According to International Financial

question 130

Essay

Comet Products prepares its financial statements according to International Financial Reporting Standards (IFRS). On January 1, 2013, Comet Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. Comet recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Comet's no par common stock. Comet records interest by the straight-line method.
On June 1, 2015, Comet notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2015. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Comet paid the semiannual interest and issued the requisite number of shares for the bonds being converted.
Required:
1. Prepare the journal entry for the issuance of the bonds by Comet.
2. Prepare the journal entry for the June 30, 2013, interest payment.
3. Prepare the journal entries for the June 30, 2015, interest payment by Comet and the conversion of the bonds (book value method).

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Definitions:

Bill of Exchange

A written, unconditional order by one party directing another party to pay a specified sum of money to a third party on demand or at a set date.

Call for Tenders

A formal invitation to suppliers to bid on supplying goods or services under specified conditions.

Prospective Bidders

Prospective bidders are individuals or entities that may be interested in submitting a bid or offer to acquire goods, services, or assets that are being offered.

Guarantor

A person or entity that agrees to be responsible for another's debt or obligations if the latter fails to fulfill them.