Canada Resources Ltd. issued a 14-year, $15,000,000 debenture with an interest rate of 5%; cash interest is paid semi-annually. The market rate of interest for debt of similar size, risk, and term is 8%. The obligation can be satisfied at maturity either by cash or by issuing common shares valued at $19 per share, at the option of Canada Resources Ltd. The debenture was issued for $15,400,000.

Required:
1. Classify this debenture as debt, equity, or a compound instrument. Explain your reasoning.
2. Provide the entry to record issuance of the debenture.
3. What is the value of the liability amount(s) relating to the debenture that will be shown on the SFP at the end of the second year (after adjustments)?
4. Explain the financial statement elements that change when the bond is converted at maturity.
5. Suppose instead that the $15,000,000 debenture was convertible into common shares using a value of 105% of the average market value of common shares in the five trading days prior to conversion. Explain how this difference would affect your treatment of the debenture. Calculations are not necessary.