Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.

Izmir A.S. issued convertible bonds at their face value of 133,000 lira on December 31, 2020. The bonds have a 8-year life with interest of 13 percent payable annually. At the date of issue, the prevailing interest rate for similar debt without a conversion option was 15 percent.

Required:

a. Prepare journal entries for this compound financial instrument for the year ending December 31, 2020, under (1) IFRS and (2) U.S. GAAP.

b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2020, conversion worksheet to convert IFRS balances to U.S. GAAP.

No	Date	General Journal	Debit	Credit
1	12/31/2020	Cashselected answer correct	133,000selected answer correct	not attempted
		Bonds payableselected answer correct	not attempted	122,995selected answer incorrect
		Additional paid-in capital - Convertible bondsselected answer correct	not attempted	12,010selected answer incorrect
2	12/31/2020	Cashselected answer correct	133,000selected answer correct	not attempted
		Bonds payableselected answer correct	not attempted	133,000