Max Ltd issues $15 million of convertible notes on 1 July 2020. The notes have a maturity date of 30 June 2024. They are issued at their face value and pay an interest rate of 4 percent per annum. The interest is paid at the end of each financial year (30 June).

The notes may be converted to ordinary shares in Max Ltd at any time in the next four years.

Organisations of a similar risk profile have recently issued debt with similar terms, without the option for conversion, at a rate of 6 percent per annum.

Question:

1. Determine the amount for the liability and equity components of the convertible notes. Use the present value tables in the appendix for your calculations.
2. Prepare a schedule to determine the amortised cost of the convertible note up until their maturity.
3. Prepare the journal entries for Max Ltd to record the following transactions:
   1. the issue of the convertible notes on 1 July 2020;
   2. the interest payment and subsequent measurement of convertible notes on 30 June 2021; and
   3. the redemption of convertible notes assuming there is no conversion at maturity (30 June 2024)

Present Value Interest Factors for One Dollar Discounted at k Percent for n Periods: PVIFk,n= 1/(1 + k)" Period 6% 10% 1 0.9434 2 3 1% 0.9901 0.9803 0.9706 0.9610 0.9515 2% 0.9804 0.9612 0.9423 0.9238 0.9057 3% 0.9709 0.9426 0.9151 0.8885 4% 0.9615 0.9246 0.8890 0.8548 0.8219 5% 0.9524 0.9070 0.8638 0.8227 0.7835 0.8900 0.8396 0.7921 0.7473 7% 0.9346 0.8734 0.8163 0.7629 8% 0.9259 0.8573 0.7938 0.7350 0.6806 9% 0.9174 0.8417 0.7722 0.7084 0.6499 0.9091 0.8264 0.7513 0.6830 0.6209 11% 0.9009 0.8116 0.7312 0.6587 0.5935 12% 0.8929 0.7972 0.7118 0.6355 0.5674 13% 0.8850 0.7831 0.6931 0.6133 % 0.8772 0.7695 0.6750 0.5921 0.5194 15% 0.8696 0.7561 0.6575 0.5718 0.4972 16% 0.8621 0.7432 0.6407 0.5523 0.4761 20% 0.8333 0.6944 0.5787 0.4823 0.4019 24% 0.8065 0.6504 0.5245 0.4230 0.3411 25% 0.8000 0.6400 0.5120 0.4096 0.3277 30% 0.7692 0.5917 0.4552 0.3501 0.2693 4 5 0.8626 0.7130 0.5428 6 6 7 8 9 9 10 0.9420 0.9327 0.9235 0.9143 0.9053 0.8880 0.8706 0.8535 0.8368 0.8203 0.8375 0.8131 0.7894 0.7664 0.7441 0.7903 0.7599 0.7307 0.7026 0.6756 0.7462 0.7107 0.6768 0.6446 0.6139 0.7050 0.6651 0.6274 0.5919 0.5584 0.6663 0.6227 0.5820 0.5439 0.5083 0.6302 0.5835 0.5403 0.5002 0.4632 0.5963 0.5470 0.5019 0.4604 0.4224 0.5645 0.5132 0.4665 0.4241 0.3855 0.5346 0.4817 0.4339 0.3909 0.3522 0.5066 0.4523 0.4039 0.3606 0.3220 0.4803 0.4251 0.3762 0.3329 0.2946 0.4556 0.3996 0.3506 0.3075 0.2697 0.4323 0.3759 0.3269 0.2843 0.2472 0.4104 0.3538 0.3050 0.2630 0.2267 0.3349 0.2791 0.2326 0.1938 0.1615 0.2751 0.2218 0.1789 0.1443 0.1164 0.2621 0.2097 0.1678 0.1342 0.1074 0.2072 0.1594 0.1226 0.0943 0.0725 11 12 0.8963 0.8874 0.8787 0.8700 0.8613 0.8043 0.7885 0.7730 0.7579 0.7430 13 14 15 0.7224 0.7014 0.6810 0.6611 0.6419 0.6496 0.6246 0.6006 0.5775 0.5553 0.5847 0.5568 0.5303 0.5051 0.4810 0.5268 0.4970 0.4688 0.4423 0.4173 0.4751 0.4440 0.4150 0.3878 0.3624 0.4289 0.3971 0.3677 0.3405 0.3152 0.3875 0.3555 0.3262 0.3505 0.3186 0.2897 0.2633 0.2394 0.3173 0.2858 0.2575 0.2320 0.2090 0.2875 0.2567 0.2292 0.2046 0.1827 0.2607 0.2307 0.2042 0.1807 0.1599 0.2366 0.2076 0.1821 0.1597 0.1401 0.2149 0.1869 0.1625 0.1413 0.1229 0.1954 0.1685 0.1452 0.1346 0.1122 0.0935 0.0779 0.0649 0.0938 0.0757 0.0610 0.0492 0.0397 0.0859 0.0687 0.0550 0.0440 0.0352 0.0558 0.0429 0.0330 0.0254 0.0195 0.1252 0.2992 0.2745 0.1079 16 17 18 0.8528 0.8444 0.8360 0.8277 0.8195 0.7284 0.7142 0.7002 0.6864 0.6730 0.6232 0.6050 0.5874 0.5703 0.5537 0.5339 0.5134 0.4936 0.4746 0.4564 0.4581 0.4363 0.4155 0.3957 0.3769 0.3936 0.3714 0.3503 0.3305 0.3118 0.3387 0.3166 0.2959 0.2765 0.2584 0.2919 0.2703 0.2502 0.2317 0.2145 0.2519 0.2311 0.2120 0.1945 0.1784 0.2176 0.1978 0.1799 0.1635 0.1486 0.1883 0.1696 0.1528 0.1377 0.1240 0.1631 0.1456 0.1300 0.1161 0.1037 0.1415 0.1252 0.1108 0.0981 0.0868 0.1229 0.1078 0.0946 0.0829 0.0728 0.1069 0.0929 0.0808 0.0703 0.0611 0.0930 0.0802 0.0691 0.0596 0.0514 0.0541 0.0451 0.0376 0.0313 0.0261 0.0320 0.0258 0.0208 0.0168 0.0135 0.0281 0.0225 0.0180 0.0144 0.0115 0.0150 0.0116 0.0089 0.0068 0.0053 19 20 21 22 23 24 0.8114 0.8034 0.7954 0.7876 0.7798 0.6598 0.6468 0.6342 0.6217 0.6095 0.5375 0.5219 0.5067 0.4919 0.4776 0.4388 0.4220 0.4057 0.3901 0.3589 0.3418 0.3256 0.3101 0.2953 0.2942 0.2775 0.2618 0.2470 0.2330 0.2415 0.2257 0.2109 0.1971 0.1842 0.1987 0.1839 0.1703 0.1577 0.1460 0.1637 0.1502 0.1378 0.1264 0.1160 0.1351 0.1228 0.1117 0.1015 0.0923 0.1117 0.1007 0.0907 0.0817 0.0736 0.0926 0.0826 0.0738 0.0659 0.0588 0.0768 0.0680 0.0601 0.0532 0.0471 0.0638 0.0560 0.0491 0.0431 0.0378 0.0531 0.0462 0.0402 0.0349 0.0304 0.0443 0.0382 0.0329 0.0217 0.0181 0.0151 0.0126 0.0105 0.0109 0.0088 0.0071 0.0057 0.0046 0.0092 0.0074 0.0059 0.0047 0.0038 0.0040 0.0031 0.0024 0.0018 0.0014 0.0284 0.0245 25 0.3751 30 0.0012 * 0.0437 0.0259 0.0016 0.0005 * * 35 0.7419 0.7059 0.6989 0.6717 0.6080 36 0.5521 0.5000 0.4902 0.4529 0.3715 0.4120 0.3554 0.3450 0.3066 0.2281 0.3083 0.2534 0.2437 0.2083 0.1407 0.2314 0.1813 0.1727 0.1420 0.0872 0.1741 0.1301 0.1227 0.0972 0.0543 0.1314 0.0937 0.0875 0.0668 0.0339 0.0994 0.0676 0.0626 0.0460 0.0213 0.0754 0.0490 0.0449 0.0318 0.0134 0.0573 0.0356 0.0323 0.0221 0.0085 0.0334 0.0189 0.0169 0.0107 0.0035 0.0256 0.0139 0.0123 0.0075 0.0022 0.0196 0.0102 0.0089 0.0053 0.0014 0.0151 0.0075 0.0065 0.0037 0.0009 0.0042 0.0017 0.0014 0.0007 0.0234 0.0154 0.0054 0.0116 0.0055 0.0048 0.0026 0.0006 * * 40 50 * Present Value Interest Factors for a One-Dollar Annuity Discounted at k Percent for n Periods: PVIFA = [1 - 1/(1 + k)"] /k 10% Period 1 24% 0.8065 0.9091 2 1% 0.9901 1.9704 2.9410 3.9020 4.8534 2% 0.9804 1.9416 2.8839 3.8077 4.7135 3% 0.9709 1.9135 2.8286 3.7171 4.5797 4% 0.9615 1.8861 2.7751 3.6299 4.4518 5% 0.9524 1.8594 2.7232 3.5460 4.3295 6% 0.9434 1.8334 2.6730 3.4651 4.2124 7% 0.9346 1.8080 2.6243 3.3872 4.1002 8% 0.9259 1.7833 2.5771 3.3121 3.9927 9% 0.9174 1.7591 2.5313 3.2397 3.8897 11% 0.9009 1.7125 2.4437 3.1024 3.6959 1.7355 2.4869 3.1699 3.7908 12% 0.8929 1.6901 2.4018 3.0373 3.6048 13% 0.8850 1.6681 2.3612 2.9745 3.5172 14% 0.8772 1.6467 2.3216 2.9137 3.4331 15% 0.8696 1.6257 2.2832 2.8550 3.3522 16% 0.8621 1.6052 2.2459 2.7982 3.2743 20% 0.8333 1.5278 2.1065 2.5887 2.9906 25% 0.8000 1.4400 1.9520 2.3616 2.6893 1.4568 1.9813 2.4043 2.7454 3 30% 0.7692 1.3609 1.8161 2.1662 2.4356 4 5 6 3.6847 7 5.7955 6.7282 7.6517 4.0386 5.6014 6.4720 7.3255 8.1622 8.9826 8 5.4172 6.2303 7.0197 7.7861 8.5302 5.2421 6.0021 6.7327 7.4353 8.1109 5.0757 5.7864 6.4632 7.1078 7.7217 4.9173 5.5824 6.2098 6.8017 7.3601 4.6229 5.2064 5.7466 4.7665 5.3893 5.9713 6.5152 7.0236 4.4859 5.0330 5.5348 5.9952 6.4177 4.3553 4.8684 5.3349 5.7590 6.1446 4.2305 4.7122 5.1461 5.5370 5.8892 4.1114 4.5638 4.9676 5.3282 5.6502 3.9975 4.4226 4.7988 5.1317 5.4262 3.8887 4.2883 4.6389 4.9464 5.2161 3.7845 4.1604 4.4873 4.7716 5.0188 3.3255 3.6046 3.8372 4.0310 4.1925 3.0205 3.2423 3.4212 3.5655 3.6819 2.9514 3.1611 3.3289 3.4631 3.5705 4.3436 4.6065 4.8332 2.6427 2.8021 2.9247 3.0190 3.0915 9 8.5660 9.4713 6.2469 6.7101 10 8.7605 11 12 13 14 15 10.368 11.255 12.134 13.004 13.865 9.7868 10.575 11.348 9.2526 9.9540 10.635 11.296 8.3064 8.8633 9.3936 9.8986 10.380 7.8869 8.3838 8.8527 9.2950 9.7122 7.4987 7.9427 8.3577 8.7455 9.1079 9.3851 9.9856 10.563 11.118 7.1390 7.5361 7.9038 8.2442 8.5595 6.8052 7.1607 7.4869 7.7862 8.0607 6.4951 6.8137 7.1034 6.2065 6.4924 6.7499 5.9377 6.1944 6.4235 6.6282 6.8109 5.6869 5.9176 6.1218 6.3025 6.4624 5.4527 5.6603 5.8424 6.0021 6.1422 5.2337 5.4206 5.5831 5.7245 5.8474 5.0286 5.1971 5.3423 5.4675 5.5755 4.3271 4.4392 4.5327 4.6106 3.7757 3.8514 3.9124 3.6564 3.7251 3.7801 3.8241 3.8593 3.1473 3.1903 3.2233 3.2487 3.2682 12.106 12.849 7.3667 7.6061 6.9819 7.1909 3.9616 4.0013 11.938 4.6755 16 13.578 12.561 10.838 5.9542 5.6685 3.8874 7.8237 8.0216 4.7296 4.7746 10.106 10.477 10.828 6.0472 17 18 5.7487 14.718 15.562 16.398 17.226 18.046 14.292 14.992 15.678 16.351 11.652 12.166 12.659 13.134 13.590 13.166 13.754 14.324 14.877 11.274 11.690 12.085 12.462 9.4466 9.7632 10.059 10.336 10.594 8.8514 9.1216 9.3719 9.6036 9.8181 8.3126 8.5436 8.7556 8.9501 9.1285 7.3792 7.5488 7.7016 7.8393 7.9633 6.9740 7.1196 7.2497 7.3658 7.4694 8.2014 8.3649 8.5136 6.6039 6.7291 6.8399 6.9380 7.0248 6.2651 6.3729 6.4674 6.5504 6.6231 6.1280 6.1982 6.2593 19 4.0333 4.0591 4.0799 4.0967 4.1103 5.8178 5.8775 5.9288 11.158 3.9099 3.9279 3.9424 3.9539 4.8122 4.8435 4.8696 3.2832 3.2948 3.3037 3.3105 3.3158 20 11.470 21 22 8.6487 8.7715 5.9731 6.0113 18.857 19.660 20.456 21.243 22.023 23 17.011 17.658 18.292 18.914 19.523 15.415 15.937 16.444 16.936 17.413 14.029 14.451 14.857 15.247 15.622 12.821 13.163 13.489 13.799 14.094 11.764 12.042 12.303 12.550 12.783 10.836 11.061 11.272 11.469 11.654 10.017 10.201 10.371 10.529 10.675 9.2922 9.4424 9.5802 9.7066 9.8226 8.0751 8.1757 8.2664 8.3481 8.4217 7.5620 7.6446 7.7184 7.7843 7.8431 8.8832 8.9847 9.0770 7.1016 7.1695 7.2297 7.2829 7.3300 6.6870 6.7429 6.7921 6.8351 6.8729 6.3125 6.3587 6.3988 6.4338 6.4641 3.9631 3.9705 3.9764 4.8913 4.9094 4.9245 4.9371 4.9476 4.1212 4.1300 4.1371 4.1428 4.1474 6.0442 6.0726 6.0971 24 25 3.3198 3.3230 3.3254 3.3272 3.3286 3.9811 3.9849 30 35 36 17.292 18.665 13.765 14.498 9.4269 9.6442 25.808 29.409 30.108 32.835 39.196 22.396 24.999 25.489 27.355 31.424 19.600 21.487 21.832 23.115 25.730 15.372 16.374 16.547 17.159 18.256 18.908 19.793 21.482 12.409 12.948 13.035 13.332 13.801 11.258 11.655 11.717 11.925 12.233 14.621 15.046 15.762 10.274 10.567 10.612 10.757 10.962 8.6938 8.8552 8.8786 8.9511 9.0417 8.0552 8.1755 8.1924 8.2438 8.3045 9.6765 9.7791 9.9148 7.4957 7.5856 7.5979 7.6344 7.6752 7.0027 7.0700 7.0790 7.1050 7.1327 6.5660 6.6166 6.6231 6.6418 6.6605 6.1772 6.2153 6.2201 6.2335 6.2463 3.9950 3.9984 3.9987 4.9789 4.9915 4.9929 4.9966 4.9995 4.1601 4.1644 4.1649 4.1659 4.1666 40 50 3.3321 3.3330 3.3331 3.3332 3.3333 3.9995 3.9999