On January 1, 20X2, Brow’s Kilt Shop (BKS) issued (sold) $1,000,000 of six-year bonds that pay 5% interest semi-annually on June 30 and December 31.

On January 1, 20X2, Brow’s Kilt Shop (BKS) issued (sold) $1,000,000 of six-year bonds

that pay 5% interest semi-annually on June 30 and December 31. At the option of the

holder, each $1,000 bond is convertible into 15 of BKS’s common shares any time on or

after January 1, 20X4.

The net proceeds realized from the bond sale were $1,010,000, representing the

$1,020,000 gross proceeds from the sale less $10,000 in directly attributable issuance

costs. BKS classified the bond liability at amortized cost. At the time of sale, the market rate

of interest for similar bonds sold without the conversion option was 6%.

What is the amount (+/- $10) that BKS will initially recognize as a liability on this compound

financial instrument?

a) $940,230

b) $940,910

c) $950,230

d) $959,550