Air FranceKLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards.

Required:

1. Examine the long-term borrowings in AFs balance sheet and the related note (33.2.2). Note that AF has convertible bonds outstanding that it issued in 2013. Prepare the journal entry AF would use to record the issue of convertible bonds. Prepare the journal entry AF would use to record the issue of the convertible bonds if AF used U.S. GAAP.

2. AF does not elect the fair value option (FVO) to report its financial liabilities. Examine Note 36.3 Market value of financial instruments. If the company had elected the FVO for all of its debt measured at amortized cost, what would be the balance at December 31, 2015, in the fair value adjustment account?

33.2.2 OCEANE issued in 2013 On March 28, 2013, Air France-KLM issued 53,398,058 bonds convertible and/or exchangeable for new or existing Air France-KLM shares (OCEANE) with a maturity date fixed at February 15,2023 for a total nominal amount of 550 million Each bond has a nominal value of 10.30. The annual coupon amounts to 2.03%. The conversion period of these bonds runs from May 7,2013 to the seventh working day preceding the normal or early reimbursement date. The conversion ratio is one share for one bond. Repayment at par, plus accrued interest, will be possible as of February 15, 2019 on request of the bond holders. Air France-KLM can impose the cash reimbursement of these bonds by exercising a call from September 28, 2016 if the share price exceeds 130% of the nominal, amounting to 13.39, encouraging OCEANE owners to convert their bonds into Air France-KLM shares Upon issue of this convertible debt, Air France-KLM recorded a debt of 443 million, corresponding to the present value of future payments of interest and nominal discounted at the rate of a similar bond without a conversion option. As of December 31, 2015, the debt value amounts to 489 million. The option value was evaluated by deducting this debt value from the total nominal amount Ge 550 million) and was recorded in equity