Somerton Corporation had two issues of securities outstanding: common shares and a 6% convertible bond issue in

Question:

Somerton Corporation had two issues of securities outstanding: common shares and a 6% convertible bond issue in the face amount of $6 million. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 50 no par value common shares in exchange for each $1,000 bond. The value of the equity portion of the bond issue is $90,000. On June 30, 2017, the holders of $1.8 million of the face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,200 per bond and the market price of the common shares was $36. The total unamortized bond discount at the date of conversion was $500,000.

Instructions

Prepare the entry to record the exercise of the conversion option, using the book value method. Assume the company follows IFRS.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...