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On January 1 , 2 0 1 , when its $ 3 0 par value common stock was selling for $ 8 0 per share,

On January 1,201, when its $30 par value common stock was selling for $80 per share, Gierach Corporation issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million.
On January 1,20X3, the company's $30 par value common stock was split three for one. On January 1,20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options.
Required:
Following U.S. GAAP, prepare a journal entry to record the original issuance of the convertible debentures.
How much interest expense would the company recognize on the convertible debentures in 201?
Prepare a journal entry to record the exercise of the conversion option using the book value method.
Prepare the entry to record the exercise of the conversion option using the market-value method.
Complete this question by entering your answers in the tabs below.
Prepare a journal entry to record the exercise of the conversion option using the book value method.
Prepare the entry to record the exercise of the conversion option using the market-value method.
(If no entry is required for a transaction/event, select. "No journal entry required" in the first account field. Enter your answers in whole dollars rather than in millions.)
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