Mills Corp. (MC) prepares its statements in accordance with IFRS. On January 1, 2021, MC issued 1,000 seven-year, 5% convertible bonds with a face value of $1,000. Interest is paid annually on the bonds on December 31. Each $1,000 bond is convertible into 35 common shares, which are currently trading at $34 per share. Similar bonds without conversion features carry an interest rate of 7%. The bonds were issued at 94.Required:Calculate the amount to be allocated to the bond and the options, and record the journal entry at the date of issuance.Assume that after six years, when the carrying amount of the bonds is $981,308, the holders of the convertible bond decide to convert their bonds before the bond maturity date. Prepare the journal entry to record the conversion.How many shares were issued at the conversion?

Bonds - Bonds are fixed-income securities that reflect loans from investors to borrowers (typically…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mills Corp. (MC) prepares its statements in accordance with IFRS. On January 1, 2021, MC issued 1,000 seven-year, 5% convertible bonds with a face value of $1,000. Interest is paid annually on the bonds on December 31. Each $1,000 bond is convertible into 35 common shares, which are currently trading at $34 per share. Similar bonds without conversion features carry an interest rate of 7%. The bonds were issued at 94.

Required:

Calculate the amount to be allocated to the bond and the options, and record the journal entry at the date of issuance.
Assume that after six years, when the carrying amount of the bonds is $981,308, the holders of the convertible bond decide to convert their bonds before the bond maturity date. Prepare the journal entry to record the conversion.
How many shares were issued at the conversion?

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