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Wildhorse Inc., a publicly accountable enterprise that reports in accordance with IFRS, issued convertible bonds for the first time on

January $1,2023.$ The $$1$ million of six$-$year, $10\%($payable annually on December $31,$ starting December $31,2023),$ convertible bonds

were issued at $109.$ The bonds would have been issued at $98$ without a conversion feature and yielded a higher rate of return. The

bonds are convertible at the investor's option.

The company's bookkeeper recorded the bonds at $109$ and, based on the $$1,090,000$ bond carrying value, recorded interest expense

using the effective interest method for $2023.$ He prepared the following amortization table, believing that the yield was $9\%$ :

You were hired as an accountant to replace the bookkeeper in November $2024.$ It is now December $31,2024,$ the company's year end,

and the CEO is concerned that the company's debt covenant may be breached. The debt covenant requires Wildhorse to maintain a

maximum debt to equity ratio of $2\mathrm{.}3.$ Based on the current financial statements, the debt to equity ratio is $2\mathrm{.}6.$ The CEO recalls hearing

that convertible bonds should be reported by separating out the liability and equity components, yet he does not see any equity

amounts related to the bonds on the current financial statements. He has asked you to look into the bond transactions recorded and

make any necessary adjustments. He would also like you to explain how any adjustments that you make affect the debt to equity ratio.

Your answer is partially correct.

Determine the amount that should have been reported in the equity section of the statement of financial position at January $1,$

$2023,$ for the conversion right, considering that the company must comply with IFRS.

Amount to be reported $ And What is the Effective Interest Rate?

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