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Deep Drilling & Boring Inc., which follows IFRS, offers ten-year, 6% convertible bonds (par $1,000). Interest...

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Accounting

Deep Drilling & Boring Inc., which follows IFRS, offersten-year, 6% convertible bonds (par $1,000). Interest is paidannually on the bonds. Each $1,000 bond may be converted into 50common shares, which are currently trading at $17 per share.Similar straight bonds carry an interest rate of 8%. One thousandbonds are issued at 91.

Required

  1. Assume Deep Drilling & Boring Inc. decides to use theresidual method and measures the debt first. Calculate the amountto be allocated to the bond and to the option.

  2. Prepare the journal entry at date of issuance of the bonds underIFRS.

  3. Assume that after six years, when the carrying amount of thebonds was $933,757, the

    holders of the convertible debt decided to convert theirconvertible bonds before the

    bond maturity date. Prepare the journal entry to record theconversion.

  4. How many shares were issued at the conversion?

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