Question

I have an accounting question

Cullumber Limited had $2.32 million of bonds payable outstanding and the unamortized premium for these bonds amounted to $44,100. Each $1,000 bond was convertible into 20 preferred shares. All bonds were then converted into preferred shares. The Contributed Surplus - Conversion Rights account had a balance of $22,400. Assume that the company follows IFRS.

Assuming that the book value method was used, what entry would be made?

Assume that Cullumber Ltd. offers $9,000 to induce early conversion. What journal entry would be made?

Answer 1

Answer:

i)

Date	Particulars	Debit	Credit
	Bonds payable Dr	$23,20,000
	Premium on Bonds payable Dr	$ 44,100
	To Preferred shares($ 23,20,000 + $ 44,100)		$ 23,64,100

Working Note :

No par value of preferred shares are given ,So par value has not been taken.

ii)

Date	Particulars	Debit	Credit
	Bonds payable Dr	$ 9,000
	Conversion expense Dr	$ 171.077
	To preferred shares($ 9,000 + $ 171.077)		$ 9,171.077

Working Note:

Proportionate amount to be amortized = $ 44,100 * $ 9,000 / $ 23,20,000 = $ 171.077