Question

A. Bright-Link’s (BL) December 31, 2022, statement of financial position included the following items: Long-Term Liabilities ($ in millions) 9.6% convertible bonds, callable at 105 beginning in 2023, due 2026 (net of unamortized discount of $2.584) [note 8] 197.416 10.4% registered bonds callable at 104 beginning in 2032, due 2036 (including unamortized premium of $1.489) [note 8]. 51.489 2 Shareholders’ Equity Capital reserve – share warrants 4.000 Capital reserve – convertible bond 6.000 Note 8: Bonds (in part) The 9.6% bonds with principal amount of $200 million were issued on 1 January 2009 to yield a 10% fair market interest rate. Interest is paid semi-annually on June 30 and December 31. Each $1,000 bond is convertible into 40 ordinary shares. The 10.4% bonds were issued in 2013 at 102 to yield a 10% fair market interest rate. Interest is paid semi-annually on June 30 and December 31. Each $1,000 bond was issued with 40 detachable share warrants, each of which entitles the holder to purchase one share of BL’s ordinary shares for $25, beginning 2023. B. On January 3, 2023, when BL’s shares had a market price of $32 per share and the convertible bonds were trading at 105 (or $210 million), BL called the convertible bonds to force conversion. 90% were converted; the remainder were acquired at the call price. At the date of the acquisition, the yield on the bonds (excluding the equity options) was 9.3%. When the share price reached an all-time high of $37 in December of 2023, 40% of the warrants were exercised. Required: (Hint – refer to SFRS(I) 1-32 AG33-35) 1. Show the journal entries that were recorded when each of the two bond issues was originally sold in 2009 and 2013. 2. Prepare the journal entry to record the conversion of 90% of the convertible bonds in January 2023 and the retirement of the remainder. 3. Assume BL induced conversion by offering additional $150 cash for each bond converted. Prepare the journal entry to record the conversion of 90% of the convertible bonds in January 2023. 4. Assume BL induced conversion by modifying the conversion ratio to exchange 45 shares for each bond rather than the 40 shares provided in the contract. Prepare the journal entry to record the conversion of 90% of the convertible bonds in January 2023. 5. Prepare the journal entry to record the exercise of the warrants in December 2023.