On 1 July 2020, Europe Ltd issues 3,000 convertible notes. The notes have a three-year term and are issued at par with a

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On 1 July 2020, Europe Ltd issues 3,000 convertible notes. The
notes have a three-year term and are issued at par with a face
value of $500 per note, giving total proceeds at the date of issue
of $1,500,000. The notes pay interest at 5% p.a. annually in
arrears. The holder of each note is entitled to convert the note
into 500 ordinary shares of Europe Ltd at contract maturity.
When the notes are issued, the prevailing market interest rate
for similar debt (similar term, similar credit status of issuer and
similar cash flows) without conversion options is 8% per annum.
Required
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. (4 marks)
b) Prepare the journal entries of Europe Ltd to account for
the convertible notes for each year ending 30 June under the
following circumstances. (7 marks)