Cullumber Corporation had two issues of securities outstanding: common shares and a 7% convertible bond issue...

Cullumber Corporation had two issues of securities outstanding: common shares and a 7% convertible bond issue in the face amount of $8 million. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 no par value common shares in exchange for each $1,000 bond. The value of the equity portion of the bond issue is $48,000. On June 30, 2020, the holders of $2.40 million of the face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,240 per bond and the market price of the common shares was $38. The total unamortized bond discount at the date of conversion was $515,000.

Prepare the entry to record the exercise of the conversion option, using the book value method. Assume the company follows IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Expert Solution

Particulars	Debit	Credit
Bonds payable	2,245,000
Contributed surplus – conversion Rights	14,400
Common shares		2,259,400

Working notes:

Discount as of June 30, 2020 for 8,000,000 of bonds $515,000

Face value of all bonds $8,000,000

Carrying value of all bonds $7,485,000

Carrying amount of bonds converted:

=$2,400,000/$8,000,000 *$7,485,000

=$2,245,500

Carrying amount of rights exercised on conversion:

=$2,400,000/$8,000,000 *48,000

=$14,400

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ekkarill92 answered 2 years ago

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