NewTech Ltd. has a 31 December fiscal year-end. The company issued convertible bonds on 1 July 20X4. The \(\$ 5,000,000\) bonds pay annual interest of \(8 \%\) each 30 June and mature on 30 June 20X19. At the investor's option, each \(\$ 1,000\) bond is convertible into 50 common shares on the bond's maturity date.

Bond market analysts indicated that if the bonds had not been convertible, they would likely have sold for \(\$ 4,597,000\). They were in fact issued for \(\$ 5,350,000\).

Required:

1. Provide the journal entry to record the initial issuance of the bond.

2. Provide the entry to accrue interest at 31 December \(20 X 4\), using the effective interest method. (Hint: you will need the IRR implicit in the bond price.)

3. Assume that the bond was convertible at the investor's option at the current market price of the common shares on the maturity date. Explain what difference this would make to your response to requirements 1 and 2. Would this bond likely be issued for \(\$ 5,350,000\) ? Explain.
4. Assume that, instead of being convertible at the investor's option, the bond was mandatorily convertible at the set price of \(\$ 50\) per share. Explain what difference this would make to your response to requirements (1) and (2).