Prepare the journal entry on the date of issuance of bonds

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Question - Precision Drilling Inc., which follows IFRS, offers ten-year, 4% convertible bonds with a par value of $1,000,000. Interest is paid annually on the bonds. Each $1,000 bond may be converted into 20 common shares, which are currently trading at $17 per share. Similar straight bonds carry an interest rate of 5%. The bonds are issued at 102.

Required -

a) Assume Precision Drilling Ltd. decides to use the residual method to measures the debt. Prepare the journal entry on the date of issuance of the bonds.

b) Assume that after six years, the issuer of the bond, with the consent of the bondholders, decided to execute the conversion and offer no additional cash. The carrying amount of the bonds was $933,757. Prepare the journal entry to record the conversion.

c) How many shares were issued at the conversion?

Reference no: EM133139422

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