Question 5 (12 marks)

On 1 January 2019, Jan Limited issued at $120,000 a convertible bond with a par value of $100,000.

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 9% per annum. Interest payment

   is made annually on 31 December.

3. The market interest rate on 1 January 2019 for a similar non-convertible bond is

   8% per annum.

4. On 1 January 2019, the liability component of the bond is computed to be $103,993.

5. On 31 December 2019, after the interest has been paid and recorded, Jan Limited

   repurchases the bond for $111,000 cash. At that time the fair value of the liability component is $108,000.

Required (Answers round to the nearest dollar):

1. Prepare the journal entry to record the issuance of the convertible bond on 1 January 2019.

   (3 marks)

2. Calculate the loss on repurchase for the liability component of the bond on 31 December 2019.

   (3 marks)

3. Calculate the adjustment on the equity component of the bond on 31 December 2019.

   (2 marks)

4. Prepare the journal entries to record the repurchase of bonds on 31 December 2019.

   (4 marks)