Cullumber Inc., a publicly accountable enterprise that reports in accordance with IFRS, issued convertible bonds for the first time on January 1, 2023. The $1 million of six-year, 10% (payable annually on December 31, starting December 31, 2023), convertible bonds were issued at 106. The bonds would have been issued at 96 without a conversion feature and yielded a higher rate of return. The bonds are convertible at the investor's option. The company's bookkeeper recorded the bonds at 106 and, based on the $1,060,000 bond carrying value, recorded interest expense using the effective interest method for 2023. He prepared the following amortization table, believing that the yield was 6%: Date Cash Interest (10%) Effective Interest (6%) Premium Amortization Carrying Amount of Bonds Jan. 1, 2023 $1,060,000 Dec. 31, 2023 $100,000 $63,600 $36,400 1,023,600 You were hired as an accountant to replace the bookkeeper in November 2024. It is now December 31, 2024, the company's year end, and the CEO is concerned that the company's debt covenant may be breached. The debt covenant requires Cullumber to maintain a maximum debt to equity ratio of 2.3. Based on the current financial statements, the debt to equity ratio is 2.6. The CEO recalls hearing that convertible bonds should be reported by separating out the liability and equity components, yet he does not see any equity amounts related to the bonds on the current financial statements. He has asked you to look into the bond transactions recorded and make any necessary adjustments. He would also like you to explain how any adjustments that you make affect the debt to equity ratio. Your answer is partially correct. Determine the amount that should have been reported in the equity section of the statement of financial position at January 1, 2023, for the conversion right, considering that the company must comply with IFRS. Amount to be reported $ 100000 Prepare the journal entry that should have been recorded on January 1, 2023. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Date January 1, 2023 Account Titles and Explanation Cash Bonds Payable Loss on Conversion of Bonds Debit 1060000 40000 Credit 100000 Your answer is incorrect. Using (1) a financial calculator or (2) Excel functions, calculate the effective rate (yield rate) for the bonds. (Round answer to 5 decimal places, e.g. 2.57000%.) Effective rate 11.08459 % Your answer is partially correct. Prepare a bond amortization schedule from January 1, 2023, to December 31, 2027, using the effective interest method and the corrected value for the bonds. (Round answers to O decimal places, e.g. 5,275.) Date Jan. 1, 2023 Dec. 31, 2023 Cash Paid 100000 Schedule of Bond Discount Amortization Effective Interest Method Effective Interest 11.08459 Dec. 31, 2024 100000 106412 Dec. 31, 2025 100000 107123 Dec. 31, 2026 100000 107912 Dec. 31, 2027 100000 108789 500000 109764 Discount Carrying Amort. Amount Your answer is partially correct. Prepare the journal entry dated January 1, 2024, to correct the bookkeeper's recording errors in 2023. Ignore income tax effects. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Date Account Titles and Explanation January 1, 2024 Bonds Payable Bonds Payable Debit 23600 33588 Liability under Share Appreciation Rights Plans 42812 Credit Your answer is partially correct. Prepare the journal entry at December 31, 2024, for the interest payment on the bonds. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Date Account Titles and Explanation December 31, 2024 Interest Expense Bonds Payable Cash Debit 107123 Credit 7123 100000