On January $1,2015,$ when its $$30$ par value common stock was selling for $$80$ per share, a corporation issued $$10$ million of $10\%$ convertible debentures due in $10$ years. The conversion option allowed the holder of each $$1,000$ bond to convert it into six shares of the corporation$$s $$30$ par value common stock. The debentures were issued for $$11$ million. At the time of issuance, the present value of the bond payments was $$8\mathrm{.}5$ million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January $1,2016,$ the corporation$$s $$30$ par value common stock was split $3$ for $1.$ On January $1,2017,$ when the corporation$$s $$10$ par value common stock was selling for $$90$ per share, holders of $40\%$ of the convertible debentures exercised their conversion options. The corporation uses the straight$-$line method for amortizing any bond discounts or premiums.

Required:

$1.$ Prepare the journal entry to record the original issuance of the convertible debentures.

$2.$ Prepare the journal entry to record the exercise of the conversion option, using the book value method. Prepare the journal entry to record the original issuance of the convertible debentures on January $1,2015.$

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GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

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Prepare the journal entry to record the exercise of the conversion option, using the book value method on January $1,2017.$

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GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

$1$

$2$

$3$

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