Harrells Barrels issued $100 million of 6% convertible bonds at 101. Each $1,000 bond is convertible into 45 shares of Harrells no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 98.

Harrell applies U.S. GAAP. Recording the issuance of the bonds would cause an increase in Harrells:

Multiple Choice

Shareholders equity of $3,000,000.

Incorrect

Liabilities of $101,000,000.

Shareholders equity of $1,000,000.

Assets of $98,000,000.