On January 1, 2020, First National Bank (FNB) Company issued 10- year, K200,000 face value, 6% bonds at par (payable annually on January 1). Each K1, 000 bond is convertible into 30 shares of FNB K2 par value ordinary shares. The company has had 10,000 ordinary shares (and no preference shares) outstanding throughout its life. None of the bonds have been converted as of the end of 2021.The effective interest rate on similar bonds is 10%.

FNB also has adopted a share-option plan that granted options to key executives to purchase 4,000 shares of the company's ordinary shares. The options were granted on January 2, 2020, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company (the service period is 3 years). The options expired 6 years from the date of grant. The option price was set at K4, and the fair value option-pricing model determines the total compensation expense to be K18,000. All of the options were exercised during the year 2022: 3,000 on January 3 when the market price was K6, and 1,000 on May 1 when the market price was K7 a share. FNB's average share price was K4.40 in 2020 and K5 in 2021. The tax rate is 30%

1. Prepare the journal entry FNB would have made on January 1, 2020, to record the issuance of the bonds.(show you working)

2. Prepare the journal entry to record interest expense and compensation expense in year 2020 and 2021.(show you working)

3. FNB's net income in 2021 was K30, 000 and was K27, 000 in 2020. Compute basic and diluted earnings per share for FNB for 2021 and 2020. (show your working)

4. Assume that 75 percent of the holders of FNBs convertible bonds convert their bonds to shares on January 1, 2022, when FNB's shares are trading at K8 per share. FNB paysK2 per bond to induce bondholders to convert. Prepare the journal entry to record the conversion.(show your working)