Reference no: EM132498196

Question 1: Dakar Inc. has $3,000,000 (par value), 8% convertible bonds outstanding. Each $1,000 bond is convertible into thirty no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2017, the holders of $900,000 worth of bonds exercised the conversion privilege. On that date the market price of the bonds was 105, the market price of the common shares was $36, the carrying value of the common shares was $18 and the Contributed Surplus-Conversion Rights account balance was $450,000. The total unamortized bond premium at the date of conversion was $210,000. Using the book value method, Dakar should record, as a result of this conversion,

Option 1: a loss of $9,000

Option 2: no gain or loss

Option 3: other comprehensive income of $9,000

Option 4: a gain of $18,000