On 30 June 2016, Green Ltd issued 55 000 convertible notes with a face value of
$55 million for a term of five years. The coupon interest rate is 8% per annum, while the
market interest rate for comparable non-convertible debt is 12% per annum. Due to its
falling share price, Green Ltd expects that note holders will not exercise the note options
and convert the debt outstanding under the convertible note issue to equity instruments.
(a) Prepare an effective interest schedule and distinguish between the allocation of
interest payments and interest expense for each reporting period during the term of
the note issue.
(b) Prepare the general journal entry to record the non-exercise of the conversion
options in accordance with AASB 132. (LO5)