In: Accounting
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).
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 |