1 answer

On January 1, 2020, Wildhorse Ltd. issued 870 5-year, 10% convertible bonds at par of $1,000,...

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. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 5,275.)

PV of the debt component _________

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. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Date

Account Titles and Explanation

Debit

Credit

January 1

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

.

How should Wildhorse record the issuance if it follows ASPE? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

January 1

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount


Answers

Period Cashflows PV factor @12% Present value
1 87000 0.89286 $77,679
2 87000 0.79719 $69,356
3 87000 0.71178 $61,925
4 87000 0.63552 $55,290
5 87000 0.56743 $49,366
Debt portion $313,616
IFRS
Date Account titles and explanation Debit Credit
01-Jan Cash $870,000
10% convertible bond $313,616
Share premium - Equity Conversion $556,384
(compound bond issued)
ASPE
Cash $870,000
10% convertible bond $870,000
(bond issued)
.

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