On 31 December 20x6, BG Ltd (BG) issued an eight-year non-interest bearing convertible bond for...
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On 31 December 20x6, BG Ltd (BG) issued an eight-year non-interest bearing convertible bond for $5 million at par. The assigned debt-equity component of the bond is 3:2. The fair interest rate as at that date was 10%. BGs tax rate is 20%. Any imputed discount is not allowed for tax purposes. Which of the following journal entries best record the bond related transactions on 31 December 20x6?
(a) DR Cash $5 million CR Deferred tax liability $0.6 million CR Bond payable $2.4 million CR Capital reserve $2 million
(b)DR Cash $5 million CR Bond payable $5 million
(c) DR Cash $5 million CR Bond payable $3 million CR Deferred tax liability $0.4 million CR Capital reserve $1.6 million
(d) DR Cash $5 million CR Bond Payable $5 million DR Bond Discount $2 million CR Deferred tax liability $0.4 million CR Capital reserve $1.6 million
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