On January 1, 2021, Brampton Inc. raised $5.5 million by issuing $5 million of 4%, eight- year convertible bonds maturing on January 1, 2029. Interest was paid semi-annually on June 30 and December 31. Each $1,000 bond could be converted into 32 no par value common shares. In addition, each $1,000 bond included 40 detachable common stock warrants with an exercise price of $35 each. Immediately after issuance, the warrants, which expire on January 1, 2029, traded at $3 each on the open market. Similar non-convertible bonds issued without warrants were yielding 5% at that time.

On July 1, 2025, warrant holders exercised 80% of the warrants. The shares of Brampton traded at $40 each on that day.

On July 1, 2026, bondholders converted 70% of the bonds to common shares. The interest payment had been made on June 30, 2026, in the normal fashion. The shares of Brampton traded at $42 each on that day.

Brampton prepares its financial statements in accordance with IFRS.

Required:

Prepare journal entries to record:

1. The issuance of the convertible bonds on January 1, 2021. (5 Marks)

2. Payment of interest and related amortization on June 30, 2021 (2 Marks)

3. Exercise of the warrants on July 1, 2025. (4 Marks)

4. Payment of interest and related amortization on June 30, 2026. (4 Marks)

5. Conversion of the bonds on July 1, 2026. (3 Marks)

Answer rating: 100% (QA)

Answer 1 Since a bond issuance is receiving cash then the transaction is debited Dr ... View the full answer