Mountain Spring Distributors Limited (MSDL) is a distributor of plastic household products, located in Grange Hill, Westmoreland. The company was incorporated on the 1st of January 2019 with a share capital of 6,000,000 ordinary shares of $2. On the date of the incorporation the company acquired two (2) delivery trucks at a cost of $8,000,000 each and decided to depreciate the trucks using the units of output method. The company planned to keep the trucks for a useful life of 200,000 miles each. The residual value of each truck is estimated to be $1,000,000 each after 300,000 miles. On January 1, 2020 MSDL issued 7% convertible bonds at their nominal value of $48,000,000. The bonds are convertible at any time up to maturity into 50 ordinary shares for each $600 of bond. Alternatively, the bonds will be redeemed at par after 4 years. Similar non-convertible bonds carry an interest rate of 10%. On January 1 2021, the company issued 2,000,000 ordinary shares at a price of $3.50 which was fully subscribed. This was followed by a bonus issue of 1 share for 5 held on that date, funding from the share premium account which at that date had a balance of $700,000 and retained earnings a balance of $520,000. The company bought a machine on January 1, 2021 for $15,000,000, which also incurred freight charges of $500,000, installation fees of $200,000, and custom duties of $2,000,000. At the date of purchase the asset had an estimated useful life of 10 years. The asset is to be depreciated using a straight-line basis to a nil residual value. However, on July 1, 2022 the entitys operations have changed and management has committed to a plan of sale. The asset has been marketed at its fair value of $9,000,000 million and an active buyer was located. On further assessment indicates that cost to dispose of the asset will be $900,000. On June 30, 2022 one of the delivery trucks is involved in an accident and is sold for $700,000. MSDL replaces this truck with a new truck at a cost of $9,000,000. The residual value of this truck is $1,200,000 after using it for 300,000 miles. On January 1,2023 the directors of the company decided to lease a specialised computer system under a four-year lease commencing on that date. The computer systems remaining expected useful life is four years. Four payments are due to the lessor in the amount of $1,500,000 per year beginning December 31, 2023. The lessees incremental borrowing rate is 20% and the rate lessors implicit rate is 18%

a.Show the journal entries to record the cash and bonus issue of shares on 1 January 2020 and explain two (2) advantages of issuing bonus shares.