Norman Co., a fast-growing golf equipment company, uses IFRS. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of €400,000, and pay interest annually at a rate of 4%. The net present value of the liability component is €365,000. Greg Shark is curious as to the difference in accounting for these bonds if the company were to use U.S. GAAP.
(a) Prepare the entry to record issuance of the bonds at par under IFRS.
(b) Repeat the requirement for part (a), assuming application of U.S. GAAP to the bond issuance.
(c) Which approach provides the better accounting? Explain.