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riole Limited had $2.1 million of bonds payable outstanding and the unamortized premium for these bonds amounted to $45,800. Each $1,000 bond was convertible into 20 preferred shares. All bonds were then converted into preferred shares. The contributed Surplus - Conversion Rights account had a balance of $21,800. Assume that the company follows IFRS. Assuming that the book value method was used, what entry would be made?

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Final answer:

The journal entry for Oriole Limited's bond to preferred share conversion using the book value method involves debiting Bonds Payable, the Premium on Bonds Payable, and Contributed Surplus - Conversion Rights, while crediting Preferred Stock and Additional Paid-In Capital for the amounts as per IFRS guidelines.

Step-by-step explanation:

A student inquired about the journal entry that should be made when a company, following the International Financial Reporting Standards (IFRS) and using the book value method, converts all its bonds into preferred shares. When Oriole Limited converts its $2.1 million bonds payable with an unamortized premium of $45,800 and a Contributed Surplus - Conversion Rights balance of $21,800 into preferred shares, the following entry should be made:

Debit Bonds Payable for the bonds' face value ($2.1 million).
  1. Debit Premium on Bonds Payable for the unamortized premium ($45,800).
  2. Debit Contributed Surplus - Conversion Rights for the account's balance ($21,800).
  3. Credit Preferred Stock for the aggregate par value of the preferred shares issued upon conversion.
  4. Credit Additional Paid-In Capital for the remainder (if any) to balance the entry.

Note that the exact amount credited to Preferred Stock and Additional Paid-In Capital will depend on the par value of the preferred shares and the total amount received upon the initial bond issuance.

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