ARTL Company issued 3%, 10-year convertible bonds on January 1, 2010, at their par value of $500

Question:

ARTL Company issued 3%, 10-year convertible bonds on January 1, 2010, at their par value of $500 million. Each $1,000 bond is convertible into 40 shares of ARTL’s $1 par value common stock. Use the template below to show the financial statement effects under U.S. GAAP and IFRS of the following transactions.

a. Original issue. For the IFRS treatment, assume that ARTL would have borrowed at 8 percent if it did not offer a conversion privilege.

b. Recognition of one year’s interest effect.

c. Conversion of the bonds when a share of ARTL common stock trades at $30.

(1) Using the “book value method”

(2) Using the “market value method”

ARTL Company issued 3%, 10-year convertible bonds on January 1,

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...