Mae Jong Corp.issued 1,000 convertible bonds at the beginning of 2015.The bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at par with a face value of €1,000 per bond (the total proceeds received from issuance of the bonds are €1,000,000).Interest is payable annually at December 31.Each bond is convertible into 250 ordinary shares with a par value of €1.The market rate of interest on similar non-convertible debt is 9 percent.Assume that at the issuance date, €97,187 was credited to Share Premium-Conversion Equity.The bonds were not converted at maturity and Mae Jong pays off the convertible debt holders.What amount will Mae Jong record as a gain or a loss on this transaction?

Question

Quizplus · Accepted Answer

Mae Jong Corp. will not record a gain or loss on this transaction because the bonds were issued at par and redeemed at par. The Share Premium-Conversion Equity of €97,187 is not relevant to the gain or loss calculation as it pertains to the equity component of the convertible bonds, which was not exercised.