1. Sheridan Inc. issued $6 million of 10-year, 7% convertible bonds on June 1, 2020, at 97 plus accrued interest. The bonds were dated April 1, 2020, with interest payable April 1 and October 1. Bond discount is amortized semi-annually. Bonds without conversion privileges would have sold at 96 plus accrued interest.

On April 1, 2021, $1.50 million of these bonds were converted into 30,000 common shares. Accrued interest was paid in cash at the time of conversion. Assume that the company follows IFRS.

1. Prepare the entry to record the issuance of the convertible bonds on June 1, 2020.
2. Prepare the entry to record the interest expense at October 1, 2020, by pro-rating the number of months. Start by calculating the effective rate on the bonds using (1) a financial calculator or (2) Excel functions. Assume that interest payable was credited when the bonds were issued.
3. Prepare the entry to record the conversion on April 1, 2021. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
4. Prepare the entry to record the conversion on April 1, 2021. Assume that the entry to record amortization of the bond discount and interest payment has been made by using (1) a financial calculator or (2) Excel functions to calculate the bond discount.
5. Assume that Sheridan follows ASPE. Prepare the entry to record the issuance of the convertible bonds on June 1, 2020 assuming that the equity component is measured at $0.
6. What do you believe was the likely fair value of the common shares as at April 1, 2021 (the date of conversion)?

Answer rating: 100% (QA)

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