1. Koch Co. sold convertible bonds at a premium. Interest is paid on May 31 and November 30. On May 31, after interest was paid, 100, $1,000 bonds are tendered for conversion into 3,000 shares of $10 par value common stock that had a market price of $40 per share. How should Koch Co. account for the conversion of the bonds into common stock under the book value method? Discuss the rationale for this method.
2. What accounting treatment is required for convertible debt and why? What accounting treatment is required for debt issued with stock warrants and why?
3. Define the following:

• (a) The computation of earnings per common share
• (b) Complex capital structure
• (c) Basic earnings per share
• (d) Diluted earnings per share