Andrews Comics issues 10-year semiannual, convertible 5.5% bonds with a face value of 1,250,000. The bonds were issued at 96. Comparable bonds without a conversion feature would have required 8.75%.

1. What is the market rate of interest on the bonds?

2. Determine how much of the proceeds would be allocated to debt and how much to equity.

3. Give the journal entry to record the issuance under IFRS and the journal entries for the first and second interest payments. You may use the chart below to calculate the amounts.

Interest periods	Interest to be paid	Interest expense	Amortization	Unamortized portion	Bond carrying amount
Issue
1
2

Issuance

First Interest Payment

Second Interest Payment