Part 1

Sun Corporation issued a five-year, 4% convertible bonds at 104 on January 1, 2021 with a face value of $4,400,000. Interest is paid annually on December 31. Each $1,000 bond allowed the holder to convert the bond into 6 common shares. At the time the bonds were issued, Suns common shares were trading at $14/share. Similar bonds without the conversion feature that were trading on the open market paid 5%. On January 1, 2023, when the fair value of the corporations common shares was $18/share, 900 of the bond holders converted their bonds to common shares. (Round present value to 0 decimal places)

Required:

1. Prepare the journal entries required on January 1st , 2021, to record the issuance of the convertible bonds. (5 marks)

2. Using the book value method, prepare the entry to record the exercise of the conversion option on January 1st, 2023. (5 marks)