Cain

Corporation issued 4,400, five year, 4% convertible bonds at 104 on January 1, 2020. Interest is paid annually on December 31, each year. Each $1,000 bond allowed the holder to convert the bond into 6 common shares.

At the time the bonds were issued, Cain's common shares were trading at $14/share.

Similar straight bonds without the conversion feature were trading on the open market paid 5%.

On January 1, 2021, when the fair value of the corporation's common shares was $18/share, 880

of the bond holders converted their bonds to common shares.

(Round present value to 0 decimal places e.g. 58,971.)

Required:

1.

Prepare the journal entries required on January 1, 2020 to record the issuance

of the convertible bonds.

2.

Using the book value method, prepare the entry to record the exercise of the

conversion option on January 1, 2021