Question

37. When 5,000,000 in convertible bonds are issued at par with 800,000 in value of the equityoption embedded in the bond, the IFRS journal entry will include a debit of:A. 800,000 to Paid-in Capital-Convertible Bonds and a credit to Discount on Bonds Payable.B. 800,000 to Premium on Bonds Payable and a credit to Paid-in Capital-Convertible Bonds.C. 800,000 to Discount on Bonds Payable and a credit to Paid-in Capital-Convertible Bonds.D. 4,200,000 to Cash along with a debit of 800,000 to Discount on Bonds Payable and a credit to Bonds Payable and a credit to Paid-in Capital-Convertible Bonds.

Answer 1

The correct answer will be option (c) 800,000 to Discount on Bonds Payable and a credit to Paid-in Capital-Convertible Bonds. The correct journal entry will be a debit of $800,000 to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds but there is no option for that so we will debit 800,000 to Discount on Bonds Payable and a credit to Paid-in Capital-Convertible Bonds. If an option of "none of these" would be present then that would have been the correct answer but as there is no option as such so we will go with option (c).