ABC Company issued subordinated bonds payable on January 1, 2001 when the market interest rate was at 6%. They received $10,760,000 for the bonds. The bonds were $10,000,000 of 4% subordinated convertible debentures payable, with interest payable semi-annually. These bonds were convertible at the investors option in 15 years time into common shares of the company at the rate of 25 shares for each $1,000 bonds issued.

1. At what price would the bonds be issued if they were not convertible?
2. Explain the method used to value the conversion option.
3. Provide the entry to record the bond issuance on January 1, 2001.
4. Provide the journal entry to record interest on June 30, 2001. Use the effective interest method to record discount amortization.
5. Provide the entry to record the bond conversion to common shares at maturity on December 31, 2015. Common shares had a fair value of $44.00/share at this time.
6. Assume instead that the bond was repaid in cash at maturity. Provide all entries to record the repayment/bond maturity. If repayment is cash, what fair value for common shares is implied?