On January 1, 2019, Lin plc issued a convertible bond with a par value of £50,000 inthe market for £60,000. The bonds are convertible into 6,000 ordinary shares of £1 per sharepar value. The bond has a 5-year life and has a stated interest rate of 10% payable annually.The market interest rate for a similar non-convertible bond on January 1, 2019, is 8%. Theliability component of the bond is computed to be £53,993. The following bond amortizationschedule is provided for this bond.Effective-Interest Method10% Bond Discounted at 8%Date Cash Paid InterestExpense PremiumAmortized Carrying Amountof Bonds1/1/19 £53,99312/31/19 £5,000 £4,319 £681 53,31212/31/20 5,000 4,265 735 52,57712/31/21 5,000 4,206 794 51,78312/31/22 5,000 4,143 857 50,92612/31/23 5,000 4,074 926 50,000 Prepare the journal entry to record the conversion on December 31, 2021. Assume thatthe accrual of interest related to 2021 has been recorded.d. Assume that the convertible bonds were repurchased on December 31, 2021, for£55,500 instead of being converted. As indicated, the liability component of the bond isdetermined to be £54,000 on December 31, 2021. Assume that the accrual of interestrelated to 2021 has been recorded.e. Assume that the bonds matured on December 31, 2023, and Lin repurchased thebonds. Prepare the entry or entries to record this transaction.
On January 1, 2019, Lin plc issued a convertible bond with a par value of £50,000 in
the market for £60,000. The bonds are convertible into 6,000 ordinary shares of £1 per share
par value. The bond has a 5-year life and has a stated interest rate of 10% payable annually.
The market interest rate for a similar non-convertible bond on January 1, 2019, is 8%. The
liability component of the bond is computed to be £53,993. The following bond amortization
schedule is provided for this bond.
Effective-Interest Method
10% Bond Discounted at 8%
Date Cash Paid Interest
Expense
Premium
Amortized
Carrying Amount
of Bonds
1/1/19 £53,993
12/31/19 £5,000 £4,319 £681 53,312
12/31/20 5,000 4,265 735 52,577
12/31/21 5,000 4,206 794 51,783
12/31/22 5,000 4,143 857 50,926
12/31/23 5,000 4,074 926 50,000
Prepare the
the accrual of interest related to 2021 has been recorded.
d. Assume that the convertible bonds were repurchased on December 31, 2021, for
£55,500 instead of being converted. As indicated, the liability component of the bond is
determined to be £54,000 on December 31, 2021. Assume that the accrual of interest
related to 2021 has been recorded.
e. Assume that the bonds matured on December 31, 2023, and Lin repurchased the
bonds. Prepare the entry or entries to record this transaction.
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