intermediate accounting 2

Question 1 - Compound Instruments (10 Marks) Transformational Airlines issued several convertible bonds on January 1, 2021. Each bond is convertible into a specified number of common shares. The bonds pay interest on January 1 and July 1 of each year. On July 2, 2022, some of the bondholders decided to exercise the conversion privilege. Other information regarding the bonds follows: Par value of convertible bonds issued 5,822,000 Price at which convertible bonds issued 101 Bond coupon rate 5% Similar bonds without the conversion privilege would have been issued at the following price: 96 Face value of bonds converted to common shares by bondholders on July 2, 2022 1,455,500 Unamortized bond discount on July 2, 2022 S 58, 220 Market price of convertible bonds on July 2, 2022 104 No other bondholders converted their bonds to common shares prior to July 2, 2022. Transformational Airlines follows IFRS. Required: 1. Prepare the journal entry for the issuance of the bonds on January 1, 2021. (2.5 marks) 2. Prepare the journal entry for the conversion of the bonds on July 2, 2022. (5.5 marks) 3. Assume that Transformational Airlines follows ASPE. Identify the 2 methods that can be used to account for the issuance of the bonds on January 1, 2021, and prepare the journal entry required for each method. [2 marks)