Reference no: EM132827836

Question - Sea-to-Sky Limited (SSL), a December 31 year end publically traded company, issued convertible bonds on January 1, 2020, when the market rate was 6% and maturing on January 1, 2030. The bond terms stated:

"$8,000,000 of 7% subordinated convertible debentures, interest payable semi-annually, (June 30, December 31) convertible at the investor's option until or at maturity into Class B common shares of the company at a rate of 50 shares for each $1,000 denominated bond issued."

The bonds were issued for net proceeds of $8,700,000. Independent option pricing models indicated a value of the conversion right approximated $102,500. SSL applies the effective interest rate method and, if applicable, records discounts or premiums in a separate account.

Round all amounts in the accounting entries to the nearest dollar.

Requirement 1: Record the issuance of the bonds; with supporting computations.

Requirement 2: Record the interest expense for the six months ended June 30, 2020

Requirement 3: Prepare the entry(ies) if, at maturity date (after interest payment), no bondholders exercised their conversion right.

Requirement 4: Prepare the entry(ies) if, at maturity date (after last interest payment), all bondholders exercised their conversion right.

Requirement 5: Prepare the entry(ies), if, on June 30, 2026, after the interest payment, 20% of the bondholders exercised their right to convert their bonds to shares; this was the first conversion exercise.

Requirement 6: On the same date, June 30, 2026 and after the interest payment, with excess cash reserves and wishing no further equity dilution arising from potential convertible bond conversions, SSL went to the open market, repurchased and retired all remaining convertible bonds at 102. Prepare the retirement entry(ies).