70.2K

Verified Solution

Link Copied!

BazeBatz Ltd., issued 10% convertible bonds on January 1, 2009 at 134 with an effective rate of 6%. The bonds had a face value of $600,000 and mature on January 1, 2019. Interest was to be paid semi-annually on July 1 and January 1. Each $1,000 bond could be converted into 50 common shares. Further, each bond carried with it, three detachable warrants. Each warrant could be used to purchase one common share at an exercise price of $16. The bonds would have been sold for $778,532 without the warrants and conversion feature. Immediately after the bond issuance, the warrants were being sold at $4.40 each.

On July 1, 2011, 60% of the bonds were converted into shares following the recording and payment of the interest due. The company uses IFRS to report its financial performance.

On October 1, 2011, 70% of the warrants were exercised. The shares were being traded on that day at $18 each.

Required:

1. Prepare the journal entry to record bond issue on January 1, 2009.

2. Prepare the journal entry to record interest on July 1, 2009.

3. Show how the bonds and all other effects would be reported by the company on its balance sheet on December 31, 2010.

4. Prepare the journal entry to account for the exercise of the warrants on October 1, 2011.

5. Prepare the journal entry to record bond conversion on July 1, 2011.

Answer & Explanation Solved by verified expert

See Answer