Compound Financial Instrument

1. An entity issued 5,000 10-year bonds, face amount P1,000 per bond, at 105. Each
bond is accompanied by one warrant that permits the bondholder to purchase 20 equity
shares, par 150, at 55 per share, or a total of 100,000 shares, 5,000 x 20.
The market value of the bond ex-warrant at the time of issuance is 98.
a. To record issuance of bonds:
Cash (5M x 1.05) 5,250,000
Discount On BP 100,000
Bond Payable 5,000,000
SWO 350,000
Computation
Issue price of bonds with warrants 5,250,000
Market value of bonds ex-warrants
(5,000,000 x 0.98) (4,900,000)
Residual amount allocated to warrants 350,000

b. To record the exercise of 60% of the warrants:

Cash (60,000 shares x 55) 3,300,000
SWO (350,000 x 60%) 210,000
Share Capital (60,000 shares x 50) 3,000,000
Share premium 510,000

c. To record the expiration of the remaining warrants:

SWO 140,000
Share premium-unexercised warrants 140,000
Computation
Share warrants outstanding-issuance 350,000
Share warrants outstanding-exercise 210,000
Share warrants outstanding-expiration 140,000
(Using the illustration above but Market Value is not known)
Assume that the interest is payable annually at a nominal rate of 10% per annum. When
the bonds are issued, the prevailing market rate of interest for similar bonds without
warrants is 12% per annum. The present value of 1 at 12% for 10 periods is 0.322 and
the present value of an ordinary annuity of 1 at 12% for 10 periods is 5.65.

Computation: PV of BP
PV of Principal (5,000,000 x 0.322) 1,610,000
PV of Interest payment (5M x 10% = 500k x 5.65) 2,825,000
Total present value 4,435,000
Issuance price of Bonds w/ warrants 5,000,000
PV of BP (4,435,000)
Residual amount allocated to warrants 815,000

Journal Entries
a. Issuance of bonds
Cash (5M x 1.05) 5,250,000
Disc. On BP (5,815,000 – 5,250,000) 565,000
Bonds Payable 5,000,000
SWO 815,000 (residual amount)

An Entity issued 5,000, 5-year bonds, face amount P1,000 each at 105.
The bonds contain a conversion privilege that provides for an exchange of a P1,000 bond
for 20 equity shares with par value of P50.
It is reliably determined that the bonds would sell only at 98 w/out the conversion privilege.

Journal Entries
a. To record issuance of Bonds
Cash (5M x 1.05) 5,250,000
Disc. On BP 100,000
Bonds Payable 5,000,000
SP-CP 350,000
Computation
Total Issue price 5,250,000
Issue price of bonds w/out CP
(5,000,000 x 98%) (4,900,000)
Residual amount allocated to conversion 350,000

Bonds Payable 5,000,000

Allocated Issue Price (4,900,000)
Discount on BP 100,000

(Using the illustration above but Market Value is unknown)

Assume that the interest is payable semiannually at a nominal rate of 8% per annum.
When the bonds are issued, the prevailing market rate of interest for similar bonds without
conversion privilege is 10% per annum. The present value of 1 at 5% for 10 periods is
0.6139 and the present value of an ordinary annuity of 1 at 5% for 10 periods is 7.72.
5 years x 2 (since it’s semiannually) = 10 interest periods
Computation for PV of convertible bonds
PV of Principal (5M x 0.6139) 3,069,500
PV of semiannual interest payments
(5M x 4% = 200k x 7.72) 1,544,000
Total present value 4,613,500

Issue price of bonds w/ CP 5,250,000

PV of bonds (4,623,500)
Residual amount allocated to CP 636,500
Journal Entries
a. To record issuance of Bonds
Cash (5M x 1.05) 5,250,000
Disc on BP 386,500
BP 5,000,000
SP-CP 636,500
Conversion of Bonds
Illustration 1
The SFP showed the following balances at year-end:
BP – 12% convertible 5,000,000
Premium on BP 200,000
Share Capital, P40 par, 400,000 shares
Authorized and 250,000 shares issued 10,000,000
Share premium-issuance 3,000,000
SP – CP 500,000

On the same date, the bonds are converted into share capital. The conversion ratio is 20
shares for each P1,000 bond or a total of 100,000 shares.
Cost incurred in connection w/ the conversion amounts to P100,000. The accrued interest
on the BP on the date of conversion is P150,000 which is paid in cash.
BP 5,000,000
Premium on BP 200,000
SP-CP 500,000
Total consideration 5,700,000
Par value of SC issued
(100k shares x 40) (4,000,000)
Share premium 1,700,000

Journal Entry for conversion

Bonds Payable 5,000,000
Premium on BP 200,000
SP-CP 500,000
Interest Expense 150,000
Share capital 4,000,000
SP-issuance 1,700,000
Cash 150,000
Payments of convertible bonds at maturity
Illustration 2
On December 31, 2020, the SFP showed the following balances before payment:
BP-due 12/31/20 5,000,000
Share Capital 10,000,000
SP – issuance 4,000,000
SP – conversion option 400,000
The bonds are convertible and originally issued on January 01, 2011. The stated rate
interest is 10% payable annually every 12/31. The original issue price of the convertible
bonds was P6,000,000 allocated as follows:
Original issue price 6,000,000
Share capital (5,600,000)
SP – Conversion option 400,000

Issue price of bonds w/out conversion option 5,600,000

Face amount (5,000,000)
Premium on BP 600,000
Since the bonds already matured, the premium on bonds payable is already fully
amortized on 12/31/20. The convertible bonds are not converted but fully paid on
12/31/20.

Journal Entries
a. To record the payment on 12/31/20
BP 5,000,000
Interest Exp. (10% x 5M) 500,000
Cash 5,500,000
Note: The payment at maturity is equal to the face amount plus interest.

b. To close the share premium from conversion privilege

SP – conversion option 400,000
Share premium – issuance 400,000
Payment of convertible bonds before maturity
Illustration
On December 31, 2020, the entity showed the following balances:
BP – 8% convertible, due 12/31/25 5,000,000
Premium on BP 300,000
Share Capital 8,000,000
SP – issuance 1,000,000
SP – conversion privilege 600,000
The interest is payable annually every 12/31. The convertible bonds are not converted
but fully paid on 12/31/20. On 12/31/20, the quoted price of the convertible bonds with
conversion privilege is 108 which is the payment to the bondholders plus interest.
However, the quoted price of the bonds w/out the conversion privilege is 103.

FV of bonds w/ conversion privilege (5M x 108) 5,400,000

FV of bonds w/out CP (5M x 103) 5,150,000
Fair value of Equity Component 250,000

Bonds payable 5,000,000

Premium on BP 300,000
CA of BP 5,300,000
Payment equal to the FV of Bonds w/out CP (5,150,000)
Gain on extinguishment 150,000

Note that the total payment of 5,400,000 to the bondholders is partly liability of 5,150,000
and partly equity of 250,000.
a. To record the payment before maturity
BP 5,000,000
Premium on BP 300,000
SP – CP 250,000
Cash 5,400,000
Gain on extinguishment 150,000
Interest Expense (5M x 8%) 400,000
Cash 400,000
b. To close the remaining balance of the SP from CP
SP – CP 350,000
SP – issuance (600,000-250,000) 350,000

Intermediate Accounting Volume 2 (Valix)

1.
Cash (5M x 120) 6,000,000
Bonds Payable 5,000,000
Premium on BP 735,000
SWO 265,000
Issue price w/ warrants (5M x 120) 6,000,000
Market price of bonds w/out warrants 5,735,000
Equity component 265,000

Interest Expense (5M x 8%) 400,000

Cash 400,000

At the beginning of current year, Monic Premium on BP (400k-344,100) 55,900

Company decided to issue 5,000 10-year bonds Int. Exp (5,735,000x6%-344,100) 55,900
of 8% P1,000 face amount each with warrants
to acquire share capital at P30 per share. The
interest on the bonds is payable annually every Cash (20k shares x 30) 600k
SWO 265k
December 31.
SC (20k x 25) 500,000
SP 365,000

2. 01/01 Cash 5,100,000

Disc. On BP 343,000
B/P 5,000,000
SWO 443,000

12/31 Int. Exp. (5M x 12%) 600,000

Cash 600,000
Int. Exp 51,980
Disc. On BP 51,980
Interest paid 600,000
Int. Exp (4,657,000x14%) 651,980
Discount amort. 51,980
Cash (25k x 100) 2,500,000
SWO 443,000
SC (25k x 50) 1,250,000
At the beginning of current year, Kat Company decided SP 1,693,000
to raise additional capital by issuing P5,000,000 face
amount 5-year bonds with interest rate of 12% payable
annually on December 31.
3.

At the beginning of current year, Zamboanga Company

issued P8,000,000 of 12% bonds payable maturing in 5
years. The bonds pay interest semiannually on June 30 and
December 31.

4.

At the beginning of current year, Silay company issued 2,000

convertible bonds. The bonds have a three-year term and
are issued at 110 with a face amount of P1,000 per bond,
giving total proceed of P2,200,00.

5.

Sunshine company issued 4-year 12% convertible bonds with face

amount of P5,000,000 at 105 on January 1, 2020 maturing on
January 1, 2025 and paying interest annually on December 31.
6.

Karen Company showed the following accounts on December 31, 2020.

Bonds Payable 5,000,000
Premium on BP 250,000
SC-250,000 shares authorized and
200k shares issued, P50 par 10,000,000
SP-issuance 2,000,000
SP-CP 500,000
Retained Earnings 2,500,000

7.

On January 1, 2020, Andrea Company issued 4,000 convertible bonds with P1,000 face amount per bond. The bonds have a three-year
life and are issued at 105 or a total proceeds of P4,200,000.

8.

On January 1, 2020, Arlene Company issued convertible bonds with face amount of P5,000,000 for P6,000,000. The bonds are
convertible into 50,000 shares with P100 par value.
9.

At the beginning of current year, Fence company issued 12% P5,000,000

nonconvertible bonds at 103 which are due in 5 years. In addition, each
P1,000 bond was issued 30 share warrants, each of which entitled the
bondholder to purchase for P50 one share of Fence company, par value P25.

10. Clay Company had P600,000 convertible 8% bonds

payable outstanding on June 30. Each P1,000
bonds was convertible into 10 ordinary shares of
P50 par value.
11. Young company issued 5,000 convertible bonds at the beginning of
the current year. The bonds had four-year term with a stated rate
of interest of 6% and were issued at par with a face amount of
P1,000 per bond. Interest is payable annually on December 31.

12. At the beginning of current year, Case Company issued P5,000,000

of 12% nonconvertible 5-year bonds at 103. In addition, each
P1,000,000 bond was issued with 30 detachable share warrants,
each of which entitled the bondholder to purchase, for P50 …
13. Moriones Company issued P5,000,000 face amount 12% convertible
bonds at 110 at the beginning of current year. The bonds pay
interest semiannually on January 1 and July 1. It is estimated that
the bonds would sell only at 103 without the conversion feature…

14. At the beginning of current year, Susan company issued 5,000

convertible bonds payable. The bonds have a three-year term and
are issued at 110 with a face amount of P1,000 per bond. Interest is
payable annually in arrears at a nominal 6% interest rate.
15. Spare company had outstanding share capital with par value of
P50,000,000 and a 12% convertible bond payable in the face
amount of P10,000,000. Interest payment dates of the bond issue
are June 30 and December 31.

16. At year-end, Cey company had outstanding 10%, P1,000,000 face

amount convertible bonds payable maturing in three years.
Interest is payable on June 30 and December 31. Each P1,000
bond is convertible into 50 shares of P10 par value. The
unamortized premium on bonds payable was P60,000 at year-
end.
17. ` At year-end, Fort company issued 5,000 8%, 10-year bonds,
P1,000 face amount with detachable share warrants at 110.
Each bond carried a detachable warrant for ten ordinary
shares of Fort Company at a specified option price of P25 per
share.

At the beginning of current year, Moses company issued

18. P5,000,000 face amount, 5-year bonds at 109. Each P1,000
bond was issued with 50 detachable share warrants, each of
which entitled the bondholder to purchase one ordinary share
of P5 par value at P25. Immediately after issuance, the market
value of each warrant was P5.
19.
On January 1, 2019, Arlene company issued
convertible bonds with a face amount of P5,000,000
for P6,000,000. The bonds are convertible into 50,000
shares with P100 par value. The bonds have a 5-year
life with 10% stated interest rate payable annually
every December 31.
20. On December 31, 2020, Tamia Company showed
the following balances:
Bonds payable-6% 4,000,000
Discount on BP 500,000
Share premium-issuance 5,000,000
Share premium-conversion privilege 700,000
The interest is payable annually every December
31. The convertible bonds are not converted but
fully paid on December 31, 2020.
21. On December 31, 2013, Green Company issued
2,000 convertible bonds with a nominal interest
rate of 7% at P2,000 each. Each bond can be
converted into 5 new equity shares or redeemed
for cash, at the option of the holder, in 5 years’
time.
What is the amount recognized in equity in respect
of the issuance of convertible bonds on December
31, 2013?

22. At year-end, Guadalupe Company issued 6,000 of 9%, 10-year, P1,000 face value
bonds with detachable share warrants at 110. Each bond carried a detachable warrant
for ten ordinary shares of Fort Company at a specified option price of P25 per share.
The par value of the ordinary share is P20.
Immediately after issuance, the market value of the bonds without the warrants was
P6,400,000 and the market value of the warrants was P500,000.
What is the carrying amount of bonds payable at year-end?
a. 5,000,000
b. 5,950,000
c. 4,600,000
d. 6,400,000
Solution 9-12 Answer d
Issue price of bonds payable – equal to market value without the warrants 6,400,000

23. Gutierrez Company issued P5,000,000 face value 12% convertible bonds at 120 on
January 1, 2015, maturing on January 1, 2020 and paying interest semiannualy on
January 1 and July 1. It is estimated that would sell only at 103 without the conversion
feature. Each P1,000 bond is convertible into 10 ordinary shares with P100 par value.
What is the increase in the shareholders’ equity arising from the issuance of the
convertible bonds on January 1, 2015?
a. 850,000
Solution 9-13 Answer a
The issue of convertible bonds payable is also accounted for as a compound financial
instrument.
Accordingly, PAS 32, paragraph 29, mandates that the original issuance of convertible
bonds payable shall be accounted for as partly liability and partly equity.
The liability component is equal to the market value of the bonds without the conversion
privilege. The equity component is the remainder or residual of the issue price of the
bonds with conversion privilege.
Issue price of bonds with conversion privilege ( 5,000,000 x 120) 6,000,000
Market value of the bonds without conversion privilege ( 5,000,000 x 103) 5,150,000
Residual amount allocated to conversion privilege 850,000
Actually, the journal entry to record the issuance of the convertible bonds payable is:
Cash 6,000,000
Bonds payable 5,000,000
Premium bonds payable 150,000
Share premium-conversion privilege 850,000

24. On December 1, 2014, Lancaster Company issued at 103, five thousand of 9%,
P1,000 face value bonds. Attached to each bond was one share warrant entitling the
holder to purchase 10 ordinary shares of the entity. On December 1, 2014, the fair value
of the bonds without the share warrants was 95, and the fair value of each share
warrant was P50. What amount of the proceeds from the bond issuance should be
accounted for as the initial carrying amount of the bonds payable?
5,000,000 x .95 = 4,750,000

Theories
1. When an entity issued bonds payable that can be converted into ordinary shares,
what will be the effect on liabilities and equity, respectively?
b. Increase and Increase
2. An entity issued bonds payable with nondetachable share warrants. In computing
interest expense for the first year, the effective interest rate is multiplied by the
c. Fair value of the bonds ex-warrant
3. When an entity issued bonds payable with detachable share warrants, how will share
premium be computed if the warrants are exercised by the bondholders?
b. It is the difference between the proceeds received based on the exercise price and
the total par or stated value of the shares issued.
4. When an entity issued convertible bonds, how will share premium be computed if the
bonds were converted into ordinary shares?
c. It is the difference between the CA of the bonds plus share premium from conversion
privilege and the total par or stated value of the shares issued.
5. The proceeds from bonds issued with nondetachable share warrants shall be
accounted for
d. Partly as bonds payable and partly as shareholders’ equity

1. What is the principal accounting for a compound instrument?

b. The issuer shall classify the liability and equity components of a compound
instrument separately as liability or equity

2. How are the proceeds from issuing a compound instrument allocated between the
liability and equity components?
a. First, the liability component is measured at fair value, and then the remainder of the
proceeds is allocated to the equity component.
3. A bond or similar instrument convertible by the holder into a fixed number of ordinary
shares of the entity is
a. A compound financial instrument
4. When bonds are issued with share purchase warrants, a portion of the proceeds
should be allocated to equity when the bonds are issued with
I. Detachable share purchase warrants
II. Nondetachable share purchase warrants
c. Both I and II
5. Bondholders exchange their convertible bonds for the entity’s ordinary shares. The
CA of these bonds was lower than market value but greater than the par value of the
ordinary shares issued. If the book value method is used, which of the following
correctly states an effect of the conversion?
a. Shareholders’ equity is increased

SIM Activities
Let’s Check
1. When the cash proceeds from bonds issued with share warrants exceed the fair
value of the bonds without the warrants, the excess should be credited to SWO.
2. Cash proceeds from the issuance of convertible bonds payable should be reported as
liability for the entire proceeds. (True or False)
3. When bonds are issued with share warrants, the liability component is equal to the
excess of the proceeds over the fair value of the bonds without the share warrants.
(True or False)
4. The proceeds from an issue of bonds with share warrants should not be allocated
between the liability and equity component. (True or False)
5. A bond convertible into a fixed number of ordinary shares of the entity is a compound
financial instrument. True
6. Convertible bonds, after issuance must at all times be exchanged for equity shares.
(True or False)
7. The entry to record retirement of convertible bonds at maturity will recognize either
gain or loss on retirement of bonds payable. (True or False)
8. In the allocation of the issue price between the liability component and equity
component, the first priority basis for allocating the price is to give liability component
equal to the present value of principal and interest payments. (True or False)
9. The issuer of the bonds payable with warrants shall classify the liability and equity
component separately. (True or False)
10. The residual amount of the issue price is allocated to the warrants, meaning liability
component is allocated a value first. (True or False)

1. When bonds are issued with share warrants, the equity component is equal to
d. the excess of the proceeds over the fair value of the bonds without the share
warrants
2. It is any contract that gives rise to both a financial asset, of one entity and a financial
liability or equity instrument of another entity
a. Financial instrument
3. A financial liability is a contractual obligation
I. To deliver cash or other financial asset to another entity
II. To exchange financial instruments with another entity under conditions that are
potentially unfavorable.
c. Both I and II
4. It is any contract that evidences residual interest in the assets of an entity after
deducting all of its liabilities.
Equity Instrument
5. Financial liabilities include all of the following, except
Income taxes payable
6. Equity instruments include all of the following, except
Equity instruments include all of the following, except
7. Which of the following is not classified as a financial instrument?
Warranty provision

A•financial instrument is any contract

that gives rise to

d. A financial asset of one entity and

a financial liability or equity
instrument of another entity

Which is not classified as a financial

instrument?
c. Warranty provision

Which cannot be considered a

financial asset?

c. A contractual right to exchange

financial instruments with another
entity under conditions that are
potentially unfavorable.

Which should be classified as

financial asset?
b. Trade accounts receivable.

A financial liability
b. Is a contractual obligation to
deliver cash or another financial
asset to another entity.

Financial liabilities include all of the

following, except

d. Income tax payable

It is any contract that evidences

residual interest in the assets of an
entity after deducting all of the
liabilities.
a. Equity instrument

How should preference shares that

are redeemable mandatorily be
presented in the statement of
financial position?

d. Either current or noncurrent

liability depending on redemption
date

What is the presentation of

preference dividend on mandatorily
redeemable preference shares?

c. Interest expense
Which is not an equity instrument?

b. Bond payable

What
• is the principal accounting for a
compound instrument?

b. The issuer shall classify the liability

and equity components of a
compound instrument separately as
liability or equity.

How are the proceeds from issuing a

compound instrument allocated
between the liability and equity
components?

a. First, the liability component is

measured at fair value, and then the
remainder of the proceeds is
allocated to the equity component.

When bonds are issued with share

warrants, the equity component is
equal to

d. The excess of the proceeds over

the fair value of the bonds without
the share warrants.

When bonds are issued With share

warrants, a portion of the proceeds
should be allocated to equity When
the bonds are issued with

c. Both detachable and

nondetachable share warrants

The proceeds from an issue of bonds

payable with share warrants should
not be allocated between the liability
and equity components when

d. The proceeds should be allocated

between liability and equity under all
of these circumstances.

A bond convertible by the holder into

a fixed number of ordinary shares of
the issuer is

a. A compound financial instrument

Convertible bonds

d. May be exchanged for shares of

the issuer.

Convertible bonds

b. Allow an entity to issue debt

financing at lower rate.

What is the accounting for issued

convertible bond?
d. The instrument should be
recorded as part bond and part
equity.

Issued convertible bonds are

a. Separated into liability and equity

with the liability recorded at fair value
and the residual assigned to the
equity.

Let’s Analyze
Problem 1
Umbrella Corporation has 4,000, 10%, 10-year bonds, face value 1,000, and sold it at 105. Each
bond is accompanied by one warrant that permits the bondholder to purchase 20 shares of capital,
par 50, at 55 per share, or a total of 80,000 shares. The prevailing market rate of interest for
similar bonds without warrants is 12% per annum with which the PV of 1 at 12% for 10 periods is
.322 and in an ordinary annuity is 5.65.
What is the entry to record issuance of the compound instrument and the exercise of the 70%
warrants? Assume also the expiration of the 30% warrants and prepare the entry.
Answer:
4,000(1,000)= 4,000,000 *1.05 = 4200,000
4,000,000*.322= 1,288,000
4,000,000*.10*5.65= 2,260,000 =3,548,000
652,000

Cash 4,200,000
Discount on B/P 452,000
B/onds Payable 4,000,000
Share Warrants Outstanding 652,000
To record issuance of bonds

Exercise of warrants:
Shares purchased through Warrants exercised 4,000 x 20 x 70% 56,000
Cash payment 56,000 x 55 3,080,000
Par value 56,000 x 50 2,800,000
Share warrants outstanding (exercised) 652,000 x 70% 456,400

Cash 3,080,000
Share Warrants Outstanding 456,400
Share capital 2,800,000
Share premium 736,400
Share warrants Outstanding 195,600
Share premium 195,600

Problem 2
At the beginning of the current year, Claudine Corporation issued 6,000, 5-year bonds, face value
1,000 each at 105. The bonds has a conversion privilege that provides for an exchange of a
1,000 bond for 20 shares of capital, par 50. Without such conversion privilege, the bonds would
only sell at 98.

Prepare the entries in connection with the issuance of the bonds and the conversion of the bonds
at the end of the current year.
Answer:
6,000(1,000) *1.05 = 6,300,000
6,000(1000)*.98 = 5,880,000
SP- conversion privilege 420,000

Cash 6,300,000
Discount on Bonds payable 120,000
Bonds payable 6,000,000
Share Premium – Conversion Privilege 420,000
To record issuance of bonds

Interest expense xx
Cash xx
To record payment of interest

Interest Expense 24,000

Discount on B/P 24,000
To record amortization of discount

120,000/5 = 24,000

Bonds Payable 6,000,000

Share Premium – Conversion Privilege 420,000
Discount on Bonds /Payable 96,000
Share capital 6,000,000
Share premium-OS 324,000

Problem 3
Faith Company issued 5500 convertible bonds on January 1, 2019. The bonds have a three year
term and are issued at 110 with a face value of 1,000 per bond. Interest is payable annually in
arrears at a nominal 6% interest rate. Each bond is convertible at any time up to maturity into
100 common shares with par value of 5. When the bonds are issued, the prevailing market
interest rate for similar debt instrument without conversion option is 9%. The present value of 1
at 9% for 3 periods is .77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is
2.53.
Case a. Prepare the entries of the company in connection with the bonds for its 3 year term
assuming the bonds were not converted.
Answer:
5,500(1000)*110 = 6,050,000
5500,000*.77 = 4,235,000
5500,000*.06*2.53 = 834,900 5,069,900
SP – CP 980,100

Cash 6,050,000
Discount on Bonds payable 430,100
Bonds Payable 5,500,000
Share Premium-Conversion Privilege 980,100

12/31/2019 Interest expense 330,000

Cash 330,000

Interest expense 126,291

Discount on Bonds Payable 126,291

5,069,900*.09=456291-330,000=126,291

12/31/year 2020

Interest expense 330,000

Cash 330,000

Interest expense 137,657

Discount on B/P 137,657

5,069,900+126,291=5,196,191*.09=467,657-330,000=137,657

12/31/year 2021
Interest expense 330,000
Cash 330,000

Interest expense 166,152

Discount on Bonds Payable 166,152

5,196,191+137,657-5,500,000=166,152

Bonds Payable 5,500,000

Cash 5,500,000
Case b. Suppose that the company converted the bonds on December 31, 2019, Prepare the
entries on the bonds during 2019.

Bonds Payable 5,500,000

Share premium-Conversion Privilege 980,100
Discount on Bonds payable 303,809
Share capital 2,750,000
Share premium 3,426,291

5500*100*5=2,750,000