Reference no: EM132492212
Question 1: On April 7, 2020, Soweto Corp. sold a $1,000,000 (par value), 20 year, 8% bond issue for $1,060,000. Each $1,000 bond has two detachable warrants. Each warrant permits the purchase one of Soweto's no par value common shares for $30. At the time of the sale, Soweto's securities had the following market values:
Each $1,000 bond without warrants
Warrants $1,006
Warrants $21
Common shares $27
Assuming that Soweto adheres to IFRS, what entry should the corporation make to record the sale of the bonds?
A. Cash $1,060,000
Bonds Payable $1,060,000
B. Cash $1,060,000
Bonds Payable $1,018,000
Contributed Surplus-Stock Warrants $42,000
C. Cash $1,060,000
Bonds Payable $1,006,000
Contributed Surplus-Stock Warranty $54,000
D. Cash $1,060,000
Bonds Payable $1,000,000
Contributed Surplus-Stock Warrants$ $60,000
Question 2: On January 2, 2020, Perseus Corp. issued 10-year convertible bonds at 105. During 2021, all the bonds were converted into common shares having a total value equal to the total face amount of the bonds. At conversion, the market price of Perseus's common shares was 50% above its average carrying value. Perseus adheres to IFRS. At issuance, the cash proceeds from the issuance of these bonds should be reported as
A. contributed surplus for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.
B. contributed surplus for the entire proceeds.
C. a liability for the entire proceeds.
D. a liability for the present value of the bonds and contributed surplus for the balance.
Question 3: Wang Inc. has $3,000,000 (par value), 8% convertible bonds outstanding. Each $1,000 bond is convertible into thirty no par value common shares. The bonds pay interest on January 31 and July 31. On July 31, 2020, the holders of $900,000 worth of bonds exercised the conversion privilege. On that date the market price of the bonds was 105, the market price of the common shares was $36, the carrying value of the common shares was $18 and the Contributed Surplus-Conversion Rights account balance was $450,000. The total unamortized bond premium at the date of conversion was $210,000. Using the book value method, Wang should record, as a result of this conversion,
A. other comprehensive income of $9,000.
B. a gain of $18,000.
C. a loss of $9,000.
D. no gain or loss.
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