On January 1, 2015, when its $30 par value common stock wasselling for $80 per share, a corporation issued $30 million of 10%convertible debentures due in 10 years. The conversion optionallowed the holder of each $1,000 bond to convert it into sixshares of the corporation’s $30 par value common stock. Thedebentures were issued for $31 million. At the time of issuance,the present value of the bond payments was $28.50 million, and thecorporation believes the difference between the present value andthe amount paid is attributable to the conversion feature. OnJanuary 1, 2016, the corporation’s $30 par value common stock wassplit 3 for 1. On January 1, 2017, when the corporation’s $10 parvalue common stock was selling for $90 per share, holders of 40% ofthe convertible debentures exercised their conversion options. Thecorporation uses the straight-line method for amortizing any bonddiscounts or premiums.
Required:
| 1. | Prepare the journal entry to record the original issuance ofthe convertible debentures. |
| 2. | Prepare the journal entry to record the exercise of theconversion option, using the book value method. |
