Izmir A.S. issued convertible bonds at their face value of 134,000 lira on December 31, 2017. The bonds have a 10-year life with interest of 11 percent payable annually. At the date of issue, the prevailing interest rate for similar debt without a conversion option was 13 percent.
Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.
- a. Prepare journal entries for this compound financial instrument for the year ending December 31, 2017, under (1) IFRS and (2) U.S. GAAP.
- b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, conversion worksheet to convert IFRS balances to U.S. GAAP.
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