At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder of the bonds can convert $10,000 in bonds into cash based on the performance of the company. Specifically, each $10,000 bond can be converted into cash at the rate of 10% of net income. Draft financial statements reveal a net income of $250,000.  Prepare a report to the board of directors that discusses the recognition, measurement, and presentation of the financial instruments issued.