On January 1, 2011, Cai Company issued a 10% convertible bond at par, with a face value of ¥100,000, maturing on January 1, 2021. The bond is convertible into ordinary shares of Cai at a conversion price of ¥2,500 per share. Interest is payable semiannually. At date of issue, Cai could have issued non-convertible debt with a 10-year term bearing an interest rate of 11%.
(a) Prepare the journal entry to record the issuance of the convertible debt on January 1, 2011.
(b) On January 1, 2014, Cai makes a tender offer to the holder of the convertible debt to repurchase the bond for ¥112,000, which the holder accepts. At the date of repurchase, Cai could have issued non-convertible debt with a 7-year term at an effective-interest rate of 8%. Prepare the journal entry to record this repurchase on January 1, 2014.