On July 1, 2018, Carlo Ltd., which follows ASPE, issued a series of $4,200,000 face-value convertible...
On July 1, 2018, Carlo Ltd., which follows ASPE, issued a series
of $4,200,000 face-value convertible bonds due in five years. Each
$1,000 bond allowed the holder to convert the bond to 100 common
shares. On the day the bonds were issued, Carlo calculated that the
conversion rights were valued at $203,844.
On July 1, 2021, the bonds had a carrying value on Carlo’s books of
$4,123,076, and the fair market value of the bonds without the
convertible option was $4,140,000.
a) Assume all the bondholders voluntarily decided to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.
(3 journal entries)
b) Assume that Carlo paid the bondholders an incentive of $34,700 to convert their bonds to common shares, and that all the bondholders agreed to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.
(6 journal entries)
Please provide supporting calculation. Thanks
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