Air FranceKLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AFs financial statements and disclosure notes for the year ended December 31, 2017. This material is available under the Finance link at the companys website. You have to get the information on Air France's website in order to answer this problem. Some of the information is provided below:

Note 32.2.2 OCEANE issued in 2013

On March 28, 2013, Air France-KLM issued 53,398,058 bonds convertible and/or exchangeable for new or existing Air France-KLM shares (OCEANE) with a maturity date fixed at February 15, 2023 for a total nominal amount of 550 million. Each bond has a nominal value of 10.30. The annual coupon amounts to 2.03 per cent. On October 16, 2017, Air France-KLM informed the holders of the OCEANEs of its decision to exercise its early redemption option on November 15, 2017, in respect of all the outstanding OCEANEs. Air France-KLM was entitled to this option right, provided the share price would exceed 130 percent of the nominal, amounting to 13.39. Following the exercise by Air France-KLM of this early redemption option, nearly all the holders of OCEANEs have exercised their right to convert their OCEANEs into shares. Exercise notices for 53,359,937 OCEANEs have been received, representing 99.96% of the outstanding OCEANEs as of October 16, 2017, giving right to the delivery of 53,359,937 ordinary shares with a nominal value of EUR 1,00 each. 53,359,937 new shares have been delivered to the holders of OCEANEs having exercised their conversion rights, and have been admitted to trading on the regulated market of Euronext Paris between October 31, and November 17, 2017. A total amount of approximately 249,000 has been paid in cash on November 15, 2017 to the holders of the 23,768 OCEANEs which have not exercised their conversion right. Following this conversion, the share capital of Air France-KLM is increased by an amount of 53,359,937 and will amount to 428,634,035 comprising 428,634,035 ordinary shares with a nominal value of 1.00 each. Upon issue of this convertible debt, Air France-KLM recorded a debt of 443 million, corresponding to the present value of future payments of interest and nominal discounted at the rate of a similar bond without a conversion option. As of December 31, 2017, no OCEANE is any longer recorded on the balance sheet.

Note 35.3 Market value of financial instruments.

Required:

1. Examine the long-term borrowings in AFs balance sheet and the related note (32.2.2). Note that AF has convertible bonds outstanding that it issued in 2013. Prepare the journal entry AF would use to record the issue of convertible bonds.

2. Prepare the journal entry AF would use to record the issue of the convertible bonds if AF used U.S. GAAP.

3. AF does not elect the fair value option (FVO) to report its financial liabilities. Examine Note 35.3 Market value of financial instruments. If the company had elected the FVO for all of its debt measured at amortized cost, what would be the balance at December 31, 2017, in the fair value adjustment account?

35.3 Market value of financial instruments Market values are estimated for most of the Group's financial instruments using a variety of valuation methods. However, the methods and assumptions used to provide the information set out below are theoretical in nature. They include the following inherent limitations: * The estimated market values of financial instruments are estimated on the basis of the market price as of December 31, 2017 and 2016, * The estimated amounts as of December 31, 2017 and 2016 are not indicative of gains and/or losses potentially arising on maturity or in the event of cancellation of a financial instrument. The application of alternative methods and assumptions may, therefore, have a significant impact on the estimated market values. The methods used are as follows: * Cash, trade recelvables, other recelvables, short-term bank facilities, trade payables and other payables: The Group considers that, due to their short-term nature, net book value can be deemed a reasonable approximation of their market value. * Marketable securities, investments and other securities: The market value of securities is determined based mainly on the market price or the prices available on other similar securities. Securities classified under assets available for sale are recorded at their stock market value. Where no market comparable exists, the Group uses their book value, which is deemed a reasonable approximation of their market value in this instance. * Borrowings, other financial debts and loans: The market value of fixed and floating-rate loans and financial debts is determined based on discounted future cash flows at market interest rates for instruments with similar features. * Derivative instruments: The market value of derivative instruments corresponds to the amounts that would be payable or receivable were the positions to be closed out as of December 31, 2017 and 2016, calculated using the year-end market rate. Only the financial assets and liabilities whose fair values differs from their net book values are presented in the