Determine the debt and equity components of the convertible

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On 1 July 2018 Strawman Ltd issues convertible notes with a face value of $10 million. The convertible notes have a 5-year term and mature on 30 June 2023. Interest is payable in annually in arrears, 30 June each year. The coupon rate of interest is 4% p.a., At around the same point in time, companies with a similar credit rating issue debt security without a conversion option with a coupon rate of 5% per annually.

Required

Question 1: Determine the debt and equity components of the convertible notes issued using the residual valuation method.

Question 2: Prepare the entries of Strawman Ltd to account for the convertible notes over the period 1 July 2018 to 30 June 2019

Reference no: EM132549919

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