A company issues 4% convertible bonds at their nominal value of $47 million. The bonds may...

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A company issues 4% convertible bonds at their nominal value of $47 million. The bonds may be converted at any time up to maturity into 70 ordinary shares for each $50 of bond, or they may be redeemed at par after 3 years. Similar non-convertible bonds would carry an interest rate of 7%. REQUIRED: What amounts will be shown as a financial liability and as equity when the convertible bonds are issued? Show the relevant journal entries and supporting workings. (14 marks) Briefly explain how substance over form applies to the recognition of the bonds. (2 marks) A company issues 4% convertible bonds at their nominal value of $47 million. The bonds may be converted at any time up to maturity into 70 ordinary shares for each $50 of bond, or they may be redeemed at par after 3 years. Similar non-convertible bonds would carry an interest rate of 7%. REQUIRED: What amounts will be shown as a financial liability and as equity when the convertible bonds are issued? Show the relevant journal entries and supporting workings. (14 marks) Briefly explain how substance over form applies to the recognition of the bonds. (2 marks)

Answer rating: 100% (QA)

The issuance of the 4 convertible bonds will result in a financial liability and equity being recognized on the companys balance sheet The financial l... View the full answer