On January 2, 2017, Zamarano, Inc. issued 5,000 10-year, 6%, $1,000 bonds for $5,500,000. Interest is paid each December 31. The market rate of interest for non-convertible bonds is 5%. Each bond is convertible into 25 shares of Zamarano $2 Par Value common stock after two years. The market value of the stock on the date of the issue was $45. On January 2, 2021, when the carrying value of the bonds was $5,253,785, all of the bondholders converted the bonds to stock. Zamarano reports under IFRS.
Required:
1. Compute the present value of the bond issue.
2. Prepare the journal entry to record the issuance of the bonds.
3. Record the conversion of the bonds.

Question

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The Answer of On January 2, 2017, Zamarano, Inc. issued 5,000 10-year, 6%, $1,000 bonds for $5,500,000. Interest is paid each December 31. The market rate of interest for non-convertible bonds is 5%. Each bond is convertible into 25 shares of Zamarano $2 Par Value common stock after two years. The market value of the stock on the date of the issue was $45. On January 2, 2021, when the carrying value of the bonds was $5,253,785, all of the bondholders converted the bonds to stock. Zamarano reports under IFRS.
Required:
1. Compute the present value of the bond issue.
2. Prepare the journal entry to record the issuance of the bonds.
3. Record the conversion of the bonds.