Hydra Technologies issued $1 million of convertible bonds at par value. The bond is a five-year issue with interest payable annually at the end of the year at a nominal interest rate of 3%. The present value of the interest payments (using the 6% prevailing rate for similar debt without conversion option) and return of principal is $126,371 and $747,258, respectively. Each bond has a face value of $1,000 and is convertible at any time up to maturity into 200 shares of common stock. At the date of issue, the fair value of Hydra Technologies common stock is $3. How will the amount recorded to equity differ under IFRS and US GAAP on the date of issue?

Select one:

a. IFRS equity will exceed US GAAP by $873,629

b. IFRS equity will exceed US GAAP by $126,371

c. IFRS equity will equal US GAAP

d. US GAAP equity will exceed IFRS by $50,000

e. US GAAP equity will exceed IFRS by $243,255

Answer rating: 100% (QA)

Statement b IFRS equiry will exceed US GAAP by 126371 is correct Convertible debt needs to ... View the full answer