Reference no: EM132600369
Question - On September 30, 2020, Sunland Inc. issued $3,750,000 of 10-year, 8% convertible bonds for $4,306,000. The bonds pay interest on March 31 and September 30 and mature on September 30, 2030. Each $1,000 bond can be converted into 80 no par value common shares. In addition, each bond included 20 detachable warrants. Each warrant can be used to purchase one common share at an exercise price of $15. Immediately after the bond issuance, the warrants traded at $2.90 each. Without the warrants and the conversion rights, the bonds would have been expected to sell for $3,947,000.
On March 23, 2023, half of the warrants were exercised. The common shares of Sunland Inc. were trading at $20 each on this day.
Immediately after the payment of interest on the bonds, on September 30, 2025, all bonds outstanding were converted into common shares. Assume the entity follows IFRS.
Prepare the December 31, 2020 year-end adjusting journal entries and the payment of interest on March 31, 2021. Assume that Sunland Inc. does not use reversing entries. For amortization of premium, pro-rate using number of months.
Prepare the journal entry to account for the exercise of the warrants on March 23, 2023.
How many common shares were issued in this transaction?
Prepare the journal entry to account for the bond redemption on September 30, 2025.
How many shares were issued on September 30, 2025?
Calculate the minimum market value of the common shares as of the date of the conversion, September 30, 2025.
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