Nova Scotian Construction Ltd. offers five-year, 8% convertible bonds with par value of $1,000,000. Interest is paid annually on the bonds. Each $1,000 bond may be converted into 50 common shares, which are currently trading at $8 per share. Similar straight bonds carry an interest rate of 10%. The bonds are issued at 101.

Instructions

Round all figures to the nearest dollar.Assume Nova Scotian Construction Ltd. follows IFRS and decides to use the residual method and measures the debt first.

1.Calculate the amount to be allocated to the bond and to the equity option.

2.Prepare the journal entry at the date of issuance of the bonds under IFRS.

3.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.There weren't any cash incentive.

4.How many shares were issued at the conversion?