Reference no: EM132711209
Francon Construction Inc, is an international company situated in Quebec City and uses IFRS. It is engaged in the construction of very high scale buildings in many countries for commercial and residential uses. On January 1, 2011, it issued 15-year redeemable bonds. These bonds could be redeemed at any time five years following the date of issue, at the option of the company. If these bonds were to be redeemed earlier than their maturity date, the company would have to pay a redemption premium of 3% of the face value of the bonds redeemed (ie: at 103). Interest was paid annually on December 31.
The company showed a credit unamortized balance (ie: book value) of $777,507.12 in the Bonds Payable account on December 31, 2014. On December 31, 2015, the company prepared the following journal entry related to this bond issue:
Interest Expense $69,975.64
Cash $63,000.00
Bonds Payable $ 6,975.64
On January 1, 2016, the company redeemed all the outstanding bonds. The cash payment was equal to the unamortized balance of the bonds plus a redemption premium of $27,000.
Required:
Problem 1. With the information given above, determine
a] The coupon rate of the bond;
b] The effective rate of the bonds;
c] The face value of the bonds.
Problem 2. Prepare the journal entry required to record the redemption of the bonds.
Problem 3. Show in good format, how the company would report the bonds on their balance sheet on December 31, 2015.
Problem 4. For this part only, now assume that the above redemption of bonds by Francon Construction Inc. did not occur and that the bonds have a face value (and book value) of $800,000 due on June 30, 2026. On March 30, 2026, it issued $600,000 in common shares and used the proceeds of this against the total payment required on June 30, 2026. The financial statements for the year ended December 31, 2025 were released on April 10, 2026.
How would they classify the bond payable on the December 31, 2025 statement of financial position if they used:
- IFRS?
- ASPE?