Convertible Bonds: Complex Group issued 1,000 convertible bonds at January 1, 2015. The bonds have a...

Convertible Bonds: Complex Group issued 1,000 convertible bonds at January 1, 2015. The bonds
have a 5-year term with a stated rate of interest of 7 percent and are issued at par with a face value
of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000 – bonds
with equity). Interest is payable annually at December 31. Each bond is convertible into 350 ordinary
shares with a par value of €1. The market rate of interest on similar non-convertible debt is 10
percent (i.e. the present value of the debt payments is €886,275– bonds without equity).
Convertible Preference Shares: Complex Group issues 500 convertible preference shares on
January 1, 2016. The preference shares have a par value of €100 per share. The shares were issued
at a price of €150 per share. The preference shares can be converted into 80 ordinary shares with a
par value of €1.
Required: Prepare the journal entries for:
1. The issuance of convertible bonds on January 1, 2015.
2. The issuance of convertible preference shares on January 1, 2016.
3. The preference shares were converted to ordinary shares at June 1, 2018.
4. The conversion of bonds, if all bonds were converted into ordinary shares at the maturity date
(January 1, 2020).

Solutions

Expert Solution

Date	Particulars	Debit ( Amount In €)	Credit ( Amount In €)
01.Jan.2015	Cash/Bank	€ 1,000,000
	Bonds Payable		€ 886,276.40
	Share Premium - Conversion into Equity		€ 113,723.60

01.Jan.2016	Cash/Bank	€ 75,000
	Preferred Stock		€ 50,000
	Additional Paid In Capital -Preferred Stock		€ 25,000

01.June.2018	Preference Share Capital	€ 50,000
	Additional Paid In Capital -Preferred Stock	€ 25,000
	Common Stock		€ 40,000
	Additional Paid In Capital -Common Stock		€ 35,000

01.June.2020	Bonds	€ 886,276.40
	Share Premium - Conversion into Equity	€ 113,723.60
	Common Stock		€ 350,000
	Additional Paid In Capital -Common Stock		€ 650,000

ekkarill92 answered 1 year ago

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