Archie Ltd$.$ Issued $1,000$ five$-$year, $6\%$ convertible bonds $($par $ $1,000)$ at $101.$ The bonds have annual interest, payable annually on December $31.$ Each $$1,000$ bond may be converted into $100$ common shares, which are currently trading at $$8$ per share. Similar straight bonds were trading at $99.$ According to an independent evaluator, the conversion rights had a value of $$24,000.$

Instructions

Assume Archie Ltd$.$ follows IFRS and uses the residual method and measures the debt first.

a$)$ Calculate the amounts to be allocated to the bond and to the conversion rights, respectively.

b$)$ Prepare the journal entry at the date of issuance of the bonds under IFRS.

c$)$ Assume that after three years, when the carrying amount of the bonds was $$998,000,$ half of the convertible bonds were converted before the bond maturity date. Prepare the journal entry to record the conversion.

d$)$ How many shares were issued at the conversion?

Assume now that Archie follows ASPE and has chosen to value the equity component at zero.

e$)$ What alternatives does Archie have to record the issuance of the bonds. Show the alternative journal entries.