Reference no: EM132911240
Question - On January 1, 2021, Barrett issued at 105, P10,000,000, 5-year, 8% convertible bonds. The bonds pay interest annually every December 31. Without the conversion option, the bonds would only sell at P9,241,842.65, or an effective rate of 10%. Each P1,000 bond is convertible into 80 of Barrett's P10 par ordinary shares. The holder of the bonds may, at their discretion, have their bonds converted into shares.
On December 31, 2021, after the payment of the annual interest, Barrett reacquired bonds having a face value of P2,000,000 at 106. On this date, the bonds have a fair value of 92 without the conversion option.
On December 31, 2022, after the payment of interest, bonds having a face value of P1,000,000 were converted into shares.
On December 31, 2025, on the date of maturity, bonds having a face value of P4,000,000 were converted into shares. Barrett paid the remaining amount.
1. How much is the equity portion of the bonds?
2. Prepare the journal entry to record the retirement of the bonds on December 31, 2021.
3. How much is the interest expense incurred by Barrett in 2022?
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