Instructions

On January $1,$ Year $1,$ when its $$30$ par value common stock was selling for $$70$ per share, a corporation issued $$20$ million of $12\%$ convertible debentures due in $10$ years. The conversion option allowed the holder of each $$1,000$ bond to convert it into six shares of the corporation's $$30$ par value common stock. The debentures were issued for $$21$ million. At the time of issuance, the present value of the bond payments was $$18\mathrm{.}50$ million, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January $1,$ Year $2,$ the corporation's $$30$ par value common stock was split $3$ for $1.$ On January $1,$ Year $3,$ when the corporation's $$10$ par value common stock was selling for $$80$ per share, holders of $40\%$ of the convertible debentures exercised their conversion options. The corporation uses the straight$-$line method for amortizing any bond discounts or premiums.

Required:

Prepare the journal entry to record the original issuance of the convertible debentures.

Prepare the journal entry to record the exercise of the conversion option, using the book value method.