On 2 January 20x0, SummerBee Corporation Ltd issued at par value a five-year convertible bond with a face value of $10,000,000. The bond carried a coupon rate of 2%. Interest on the bond was payable semi-annually on 30 June and 31 December. The bond was convertible into ordinary shares at a conversion ratio of 750 ordinary shares for every $1,000 face value of the bond. At the date of issue of the bond, the market interest rate for a similar bond without the conversion option was 5%.

Required
1. Compute the fair value of the debt component of the convertible bond at 2 January 20x0.
2. Compute the amount of interest expense for 20x1.
3. Assume that the market yield on the bond had fallen to 3% by 1 July 20x2 and that there had been no conversion of the bond. SummerBee was contemplating whether to retire the bond. Should SummerBee retire the bond?
4. Refer to (3) above. Show the journal entries that SummerBee would record on 1 July 20x2, assuming that it decided to retire the bond at a premium of 3% above par value.