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Question) On 1 July 2020, Tierny issues 5,000 convertible notes to enable construction of a...

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Accounting

Question) On 1 July 2020, Tierny issues 5,000 convertible notes to enable construction of a facility to train security guards. The notes have a three year term and are issued at par with a FV of $10,000 per note, giving total proceeds at the date of issue of $50 million. The notes pay a coupon of 6% p.a. annually in arrears (payable 30/6). The holder of each note has the option to convert the note into 5,000 ordinary shares of Tierney Ltd at the end of 3 years.

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

Required:

Prepare the journal entries for Tierney 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.

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