On 1 January 2018, Jan Limited issued a convertible bond with a par value of $100,000 for $120,000. 1. The bonds are convertible into 12,000 ordinary shares of Jan. 2. The bond has a 5-year life with a stated interest of 10% per annum. Interest payment is made each year on 31 December, starting from 31 December 2018. The market interest rate on 1 January 2018 for a similar non-convertible bond is 8% per annum. On 1 January 2018, the liability component of the bond is computed to be $107,986. 5. On 31 December 2019, after the interest has been recorded, Jan Limited repurchases the bond for $111,000 cash. At that time the fair value of the liability component is $108,000. Cash paid Interest expense Premium amortised Date 1 January 2018 31 December 2018 31 December 2019 Carrying amount of liability $107,986 $106,625 $105, 155 $10,000 $10,000 $8,639 $8,530 $1,361 $1,470 Required: a. Prepare the journal entry to record the issuance of the convertible bond on 1 January 2018 b. Calculate the loss on repurchase for the liability component of the bond on 31 December 2019. c. Calculate the adjustment on the equity component of the bond on 31 December 2019. d. Prepare the journal entries to record the repurchase of bonds on 31 December 2019. On 1 January 2018, Jan Limited issued a convertible bond with a par value of $100,000 for $120,000. 1. The bonds are convertible into 12,000 ordinary shares of Jan. 2. The bond has a 5-year life with a stated interest of 10% per annum. Interest payment is made each year on 31 December, starting from 31 December 2018. The market interest rate on 1 January 2018 for a similar non-convertible bond is 8% per annum. On 1 January 2018, the liability component of the bond is computed to be $107,986. 5. On 31 December 2019, after the interest has been recorded, Jan Limited repurchases the bond for $111,000 cash. At that time the fair value of the liability component is $108,000. Cash paid Interest expense Premium amortised Date 1 January 2018 31 December 2018 31 December 2019 Carrying amount of liability $107,986 $106,625 $105, 155 $10,000 $10,000 $8,639 $8,530 $1,361 $1,470 Required: a. Prepare the journal entry to record the issuance of the convertible bond on 1 January 2018 b. Calculate the loss on repurchase for the liability component of the bond on 31 December 2019. c. Calculate the adjustment on the equity component of the bond on 31 December 2019. d. Prepare the journal entries to record the repurchase of bonds on 31 December 2019
