The following journal entry pertains to convertible notes with a face value of $10 million: $$\begin{array} { | c | l | r | r | }
\hline \text { Dr } & \text { Convertible notes liability } & 9814806 & \
\hline \text { Dr } & \text { Convertible notes (equity component) } & 662432 & \
\hline \mathrm { Cr } & \text { Share capital } & & 10477238 \
\hline
\end{array}$$ Which of the following statements are correct?
A) The instrument was over-valued when it was initially recognised.
B) The convertible note has been converted.
C) The value of the option to convert has increased over the period from initial recognition to conversion, by $477 238.
D) The instrument was over-valued when it was initially recognised and the value of the option to convert has increased over the period from initial recognition to conversion, by $477 238.

Question

The following journal entry pertains to convertible notes with a face value of $10 million: $$\begin{array} { | c | l | r | r | } 
\hline \text { Dr } & \text { Convertible notes liability } & 9814806 & \
\hline \text { Dr } & \text { Convertible notes (equity component) } & 662432 & \
\hline \mathrm { Cr } & \text { Share capital } & & 10477238 \
\hline
\end{array}$$ Which of the following statements are correct?
A) The instrument was over-valued when it was initially recognised.
B) The convertible note has been converted.
C) The value of the option to convert has increased over the period from initial recognition to conversion, by $477 238.
D) The instrument was over-valued when it was initially recognised and the value of the option to convert has increased over the period from initial recognition to conversion, by $477 238.

Quizplus · Accepted Answer

The journal entry shows a debit to convertible notes liability and a convertible notes (equity component), with a credit to share capital, indicating that the convertible notes have been converted into equity.

The Following Journal Entry Pertains to Convertible Notes with a Face