Entity 3 issued a convertible bond on 1 January 2022 for £6,000,000. It has a face value of £5,000,000, a coupon interest rate of 10% per year, and a maturity of 5 years. A similar bond with no option to convert has a discount rate of 8%. 

 Required

Show how this convertible bond should be accounted for in Entity 3's financial statements as on 1 January 2022 and 31 December 2022. 

Answer rating: 100% (QA)

To account for a convertible bond issued by Entity 3 we need to consider the financial statements as of two key dates 1 January 2022 the issue date an... View the full answer