On 1 July 2017 Stark Manufacturers Ltd issues convertible notes at their face value of $7,500,000. The notes are convertible into ordinary shares at the discretion of the holders. The notes pay interest at the rate of 3% per year each 30 June and mature in 7 years (on 30 June 2024). The company has a 30 June balance date.

On 1 July 2017, comparable debt without the conversion option yields 5% per year.

Which of the following is correct for the year ended 30 June 2018 (rounded to nearest thousand dollars)?

Select one:

a.

Interest expense for year ended 30 June 2018 $	Closing book value of convertible note liability at 30 June 2018 $
348,000	7,092,000

b.

Interest expense for year ended 30 June 2018 $	Closing book value of convertible note liability at 30 June 2018 $
343,000	6,968,000

c.

Interest expense for year ended 30 June 2018 $	Closing book value of convertible note liability at 30 June 2018 $
355,000	7,221,000

d.

Interest expense for year ended 30 June 2018 $	Closing book value of convertible note liability at 30 June 2018 $
337,000	6,851,000

e.

Interest expense for year ended 30 June 2018 $	Closing book value of convertible note liability at 30 June 2018 $
332,000	6,739,000