On January 1, 2012, when its $30 par value common stock was selling for $80 per share, Gierach Corporation issued $10 million of 4 convertible debentures due in 10 years The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company 's $30 par value...

Requirement 1 Journal entry to record the original issuance of the 10 million convertible bond at pa ...

On January 1, 2012, when its $30 par-value common stock was selling for $80 per share, Gierach

Question:

On January 1, 2012, when its $30 par-value was selling for $80 per share, Gierach issued $10 million of 4% convertible due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par-value common stock. Cash settlement upon conversion is not permitted.
The were issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million.
On January 1, 2017, the company's $30 par-value was split three for one.
On January 1, 2018, when the company's $10 par-value was selling for $90 per share, holders of 40% of the convertible exercised their conversion options.
Required:
1. Following U.S. GAAP, prepare a journal entry to record the original issuance of the convertible .
2. How much interest expense would the company recognize on the convertible in 2015?
3. Prepare a journal entry to record the exercise of the conversion option.
4. Why do many companies use the book value method to record debt conversions?
Debentures
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