Question

On January 1, 2020, Wildhorse Ltd. issued 870 5-year, 10% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6. Similar straight bonds carry an interest rate of 12%.

Calculate the PV of the debt component by itself. Calculate using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function

PV=_________

How should Wildhorse record the issuance if it follows IFRS? Use the amount you arrived at in part (a) using a financial calculator or Excel

Date	Account Titles and Explanation	Debit	Credit
January 1	Cash	enter a debit amount	enter a credit amount
	Bond Payable	enter a debit amount	enter a credit amount
	Contributed Surplus- Conversion Rights	enter a debit amount	enter a credit amount

Answer 1

	Assuming it to be an optionally convertible bond
			Cashflows	PV Amount
		1	$87,000	$77,679	87000/(1.12)^1
		2	$87,000	$69,356	87000/(1.12)^2
		3	$87,000	$61,925	87000/(1.12)^3
		4	$87,000	$55,290	87000/(1.12)^4
		5	$957,000	$543,028	957000/(1.12)^5
		PV of bond		$807,277
	Date	Account Titles and Explanation	Debit	Credit
	01-Jan	Cash	870000
		Bond Payable		$807,277
		Contributed Surplus- Conversion Rights		$62,723
	Assuming it to be an compulsory convertible bond
		1	$87,000	$77,679	87000/(1.12)^1
		2	$87,000	$69,356	87000/(1.12)^2
		3	$87,000	$61,925	87000/(1.12)^3
		4	$87,000	$55,290	87000/(1.12)^4
		5	$87,000	$49,366	87000/(1.12)^5
				$313,616
	Date	Account Titles and Explanation	Debit	Credit
	01-Jan	Cash	870000
		Bond Payable		$313,616
		Contributed Surplus- Conversion Rights		$556,384