Convertible Debt, Investor's Option: Nero Solutions Company issued an \(\$ 800,000,6 \%\), three-year bond for \(\$ 806,000\). The bond pays interest annually, at each yearend. At maturity, the bond can be repaid in cash or converted to 60,000 common shares at the investor's option. The market interest rate for bonds of similar term and risk, but that are not convertible, is in the range of \(7 \%\).

Required:

1. Calculate the portion of the bond to be recorded as a liability.

2. Provide the entry to record issuance of the bond.

3. Provide the entries to record interest expense and the annual cash payment each year over the bond's three-year life.

4. Provide the entry to record the maturity of the bond, assuming that shares were issued.

5. Provide the entry to record the maturity of the bond, assuming that cash is paid.

6. Provide the entry to record early repayment of the bond, assuming that it was repaid in cash in an open market transaction after two complete years. Cash of \(\$ 810,000\) was paid, of which \(\$ 802,000\) related to the liability and \(\$ 8,000\) related to the conversion option.