Reference no: EM132527500
Question - Krazy Kiwis Inc. issued $6 million of 10-year, 9% convertible bonds on June 1, 2017. These bonds were issued at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually. Similar bonds without the conversion privileges would have sold at 97 plus accrued interest. On April 1, 2018, $1.5 million of these bonds were converted into 30,000 common shares. Accrued interest was paid in cash at the time of conversion but only to the bondholders whose bonds were being converted. Assume that the company follows IFRS.
Required -
1) Prepare the entry to record the issuance of the convertible bonds on June 1, 2017.
2) Prepare the entry to record the interest expense at October 1, 2017 by pro-rating the number of months. Assume that interest payable was credited when the bonds were issued.
3) Prepare the entry(ies) to record the conversion on April 1, 2018. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
4) What do you believe was the likely fair value of the common shares as at April 1, 2018?
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