1. When convertible debt is not converted at maturity

a. a gain or loss is recorded for the difference between the book value of the debt and the present value of the cash flows.

b. the amount originally allocated to equity is recorded as a gain on retirement.

c. the amount allocated to the equity component at the issuance date is recorded as a loss on retirement.

d. the carrying value of the bond equals its face value and it is removed from the books.

2. Mae Jong Corp issues $1,000,000 of 10% bonds payable which may be converted into 10,000 shares of $2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000. In accounting for these bonds, Mae Jong Corp. will

a. First assign a value of the equity component, then determine the liability component.

b. Assign no value to the equity component since the conversion privilege is not separable from the bond.

c. First assign a value to the liability component based on the face amount of the bond.

d. Use the