Angela AG issues $2,000$ convertible bonds at January $1,2022.$ The bonds have a $3-$year life and are issued at par with a face value of $1,000$ per bond, giving total proceeds of $2,000,000.$ Interest is payable annually at $6\%.$ Each bond is convertible into $250$ ordinary shares $($par value of $1).$ When the bonds are issued, the market rate of interest for similar debt without the conversion option is $8\%.$

Instructions

A$.$ Compute the liability and equity component of the convertible bond on January $1,2022.$

B$.$ Prepare the journal entry to record the issuance of the convertible bond on January $1,2022.$

C$.$ Prepare the journal entry to record the repurchase of the convertible bond for cash at January $1,2025,$ its maturity date.