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# Calculate the stream of interest expenses across the first three years of the life of the notes

1. OZ Ltd issued \$20 million of convertible notes on 1 July 2016. The notes have a life of 6 years and a face value of \$20 each. Annual interest of 5% is payable at the end of each financial year. The notes were issued at their face value and each note can be converted into one ordinary share in OZ Ltd at any time over their lives. Organisations with a similar risk profile to OZ Ltd have issued debt with similar terms but without the option to convert at the rate of 7% (Rounded to the nearest integer). Additional information The present value of an annuity of \$1 per period for n = 6 periods at 7% is 4.766540. The present value of an annuity of \$1 per period for n = 6 periods at 5% is 5.075692. The present value of \$1 in n periods for n = 6 at 7% is 0.6663422. The present value of \$1 in n periods for n = 6 at 5% is 0.7462154.

Requirement:

(a) Identify the present value of the notes and calculate the equity component, provide the appropriate accounting entries to record the issue of the convertible notes

(b) Calculate the stream of interest expenses across the first three years of the life of the notes.

(c) Provide appropriate accounting entries to record the conversion of the notes to equity on 1 July 2017 (including the journal entries to record interest expense and interest payment)?