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Prepare the journal entry to record the conversion

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Question - On July 1, 2018, Headland Ltd., which follows ASPE, issued a series of $3,200,000 face-value convertible bonds due in five years. Each $1,000 bond allowed the holder to convert the bond to 100 common shares. On the day the bonds were issued, Headlandcalculated that the conversion rights were valued at $153,802.

On July 1, 2021, the bonds had a carrying value on Headland's books of $3,143,400, and the fair market value of the bonds without the convertible option was $3,160,000.

a) Assume all the bondholders voluntarily decided to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.

b) Assume that Headland paid the bondholders an incentive of $34,400 to convert their bonds to common shares, and that all the bondholders agreed to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.

Reference no: EM132664976

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