Reference no: EM132739297
Question - On October 31, 2020, Dunder Mifflin Paper Inc. issued $4 million of 10-year, 8% convertible bonds for $4.6 million. The bonds pay interest on April 30 and October 31 and mature on October 31, 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 $3 each. Without the warrants and the conversion rights, the bonds would have been expected to sell for $4.2 million.
On April 23, 2023, half of the warrants were exercised. The common shares of Dunder Mifflin Paper Inc. were trading at $20 each on this day.
Immediately after the payment of interest on the bonds, on October 31, 2025, all bonds outstanding were converted into common shares. Assume the entity follows IFRS.
Required -
a) Create bond amortization schedule/table from October 31, 2020, to October 31, 2025, using the effective interest rate. Round to the nearest dollar.
b) Prepare the December 31, 2020 year-end adjusting journal entries and the payment of interest on April 30, 2021. For amortization of premium, pro-rate using number of months.
c) Prepare the journal entry to account for the exercise of the warrants on April 23, 2023. How many common shares were issued in this transaction?
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