Convertible Bond, Investor's Option: Bixon Corp. Ltd. issued convertible bonds payable on 1 January \(20 \mathrm{Xl}\), when the market interest rate was \(10 \%\). The bond indenture stated: \(\$ 7,500,000\) of \(8 \%\) subordinated convertible debentures payable, interest payable semi-annually, convertible at the investor's option in 10 years' time into class A common shares of the company at the rate of 70 shares for each \(\$ 1,000\) bond issued. The bonds were issued for net proceeds of \(\$ 7,400,000\).

Required:

1. At what price would the bonds be issued if they were not convertible?

2. How is the option valued?

3. Provide the entry to record issuance of the bond on 1 January 20X1.

4. Provide the journal entry to record interest payment and interest expense on 30 June 20X1. Use the effective interest method to record discount amortization.

5. Provide the entry to record bond conversion to common shares at maturity, on 31 December \(20 \times 10\). Common shares had a fair value of \(\$ 25\) per share at this time.

6. Assume instead that the bond was repaid in cash at maturity. Provide all entries to record the repayment/bond maturity. If repayment is in cash, what fair value for common shares is implied?