Prepare journal entries for hodge ltd to record transaction

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On 1 July 2020, Hodge Ltd issues 5,000 comvertible notes to enable construction of facility to train security guards. The notes have a 3 yesr term and are issued at par with a FV of $20,000 per note, giving total proceeds at the date of issue of $100 million. The notes pay a coupon rate of 6% per annum annually in arrears (payable 30/6). The holder of each note has the option to convert the note into 5000 ordinary shares of Tierney Ltd at the end of 3 years.

When the notes are issued, the market interest rate for smaller debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 9% p.a.

Required;

Problem 1: Prepare journal entries for Hodge Ltd to record this transaction on:

1. 1 July 2020 when the convertible note is issued
2. 30 June 2021 when the first coupon is payable.

Reference no: EM132698945

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