Connar Corporation sells $100,000 of five-year, 8% convertible bonds that pay interest annually for $106,000. The market interest on the day of issuance is 10%. Each $10,000 bond is convertible into 100 common shares on any interest date after the end of the second year from the date of issuance. Conversion is at the option of the investor.

Instructions

1. Record the journal entry using the IFRS - residual value method.

2. Assume that all of the Connar Corporation bonds are converted into 1,000 common shares at the end of the second year. The market price of one common share is $140 per share. Calculations show that $4,974 of the discount has not been amortized. (Effective interest method was used to determine this unamortized discount.) Record the journal entry for conversion of the bonds.