How many shares were issued at the conversion

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Reference no: EM133432499

Case Study: Alex Marine Construction Ltd. offers five-year, 8% convertible bonds (par $ 1,000). Interest is paid annually on the bonds. Each $ 1,000 bond may be converted into 100 common shares, which are currently trading at $ 8 per share. Similar straight bonds carry an interest rate of 10%. One thousand bonds are issued at 102.

Questions:

a) Assume Alex Marine Construction Ltd. follows IFRS and decides to use the residual method and measures the debt first. Calculate the amount to be allocated to the bond and to the option. Use present value tables or excel (show your calculations).

b) Prepare the journal entry at the date of issuance of the bonds under IFRS.

c) Assume that after three years, when the carrying amount of the bonds was $ 845,000, 40% of the holders of the convertible debt decided to convert their convertible bonds before the bond maturity date. Prepare the journal entry to record the conversion.

d) How many shares were issued at the conversion?

e) Assume now that Alex Marine follows ASPE and has chosen as an accounting policy to value the equity component at zero. Prepare the journal entry at the date of issuance of the bonds.

Reference no: EM133432499

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