On March 1,2016,Doll Co.issued 10-year convertible bonds at 106.During 2019,the bonds were converted into common stock when the market price of Doll's common stock was 500 percent above its par value.Doll prepares its financial statements according to International Financial Reporting Standards (IFRS).On March 1,2016,cash proceeds from the issuance of the convertible bonds should be reported as:

Question

Quizplus · Accepted Answer

Under IFRS, when convertible bonds are issued, the proceeds are split between a liability component and an equity component. The liability component is the present value of the bond's cash flows, and the equity component is the value of the conversion option. Therefore, the portion of the proceeds attributable to the conversion feature is reported as paid-in capital, and the balance is reported as a liability.