2016? Explain. Case 11-3 Alternative Financing Decision Baker Company needs S1 million to expand its existing plant, Baker ma is considering the following two alternative forms of financing: 1. At the beginning of 2014, issue $1 million of convertible, 10 10-year, 10 percent bonds. Each $1,000 bond can be converted into 20 shares Ga $10 par value common stock. The conversion may takeplaret three years. 2. At the beginning of 2014, issue 10,000 shares of $100 par value , $10 redeemable preferred stock. The preferred is redeemable at $102 from the date of issue. en years Baker's management is concerned about the effects of the two alternatie cash flows, their financial statements, and future financing for other planned pansion activities. Also, existing debt covenants restrict the debt-to-equity rate 2:1; $1 million in new debt would cause the debt-to-equity ratio to be close to 21 Baker believes that either the bonds or the preferred stock could be sold at p c, 8 value. Their income tax rate is 34 percent. Baker Company common stock is currently selling for $45 per share. Required a. Discuss the theoretical and current GAAP treatments for convertible bonds b. Discuss the current GAAP treatment for redeemable preferred stock. c. Compare the effects of the two financing alternatives on Baker Com balance sheet, income statement, and cash flows under current GAAP. Your pany's comparison should consider 2011 and future years, the potential con of the bonds, and the debt covenant restrictions