On January 1, 2016, Gless Textiles issued $13.6 million of 7%, 10-year convertib

Question

On January 1, 2016, Gless Textiles issued $13.6 million of 7%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 98 (that is, 98% of face amount). Century Services purchased 8% of the issue as an investment. Required: Assume Gless Textiles prepares its financial statements according to International Financial Reporting Standards. Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century.

Explanation / Answer

Gless Textiles Details Amt $ Face Value Convertible Bond          13,600,000 Selling Price Convertible bond@102          13,872,000 Bonds without conversion option are selling Value of Debt Component @98% of par=(IFRS method)          13,328,000 Value of Equity Component as per residual method                544,000 Century Service purchased 8% at a cost=             1,109,760 Book of Gless Textiles Date   Account Title Dr $ Cr $ Jan 1.2016. Cash    13,872,000.00 Convertible Bond Payable -Debt Component    13,328,000.00 Convertible Bond Payable -Equity Component          544,000.00 Book of Century Services Date   Account Title Dr $ Cr $ Jan 1.2016. Investment in Convertibel Bond       1,109,760.00 Cash      1,109,760.00

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