Saint Martin Inc. issued $300,000 of 12 percent, 10-year bonds on July 1, 2019. Interest payments dates are January 2 and July 1. The issue price was $293,400. The bonds are convertible into common shares at the rate of 15 common shares for each $1,000 bond. The market price of Saint Martin Inc. common shares has risen steadily over the last two years, and on July 1, 2021, half of the bonds are converted into common shares after the interest payment entry has been recorded.

Required

1. Compute the balance in the premium or discount account on the date of conversion. Saint Martin Inc. uses the straight-line method of amortization.

2. Prepare the entry to convert half of the bonds into common shares.