Maron Construction Ltd. offers five-year, 8% convertible bonds (par $ 1,000). Interest is paid annually on the bonds. Each $ 1,000 bond may be converted into 100 common shares, which are currently trading at $ 8 per share. Similar straight bonds carry an interest rate of 10%. Maron Ltd. issued 1,000 at 101 each.

Instructions

a) Assume Maron Construction Ltd. follows IFRS and decides to use the residual method and measures the debt first. Calculate the amount to be allocated to the bond and to the option. (3 marks)

b) Prepare the journal entry at the date of issuance of the bonds under IFRS. (3 marks)

c) Assume that after three years, when the carrying amount of the bonds was $ 965,290, half of the holders of the convertible debt decided to convert their convertible bonds before the bond maturity date. Prepare the journal entry to record the conversion. (3 marks)

d) How many shares were issued at the conversion? (2 marks)

e) Assume now that Maron follows ASPE and has chosen as an accounting policy to value the equity component at zero. Prepare the journal entry at the date of issuance of the bonds. (part e is a bonus 2 marks)