On January 1, 2016, Slug Corporation issued $6 million of 8%, 9-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of common stock. Fuzz Company bought the entire issue as an investment. Slug Corporation uses U.S. GAAP and Fuzz Company uses IFRS; however, both companies use the straight-line method for any discount/premium amortization.

1. If Slug also issued $12 million of 8%, 9-year nonconvertible bonds at 96 on that same January 1, 2016, then what economic $$ value did investor Fuzz put on the conversion option of the $6 million convertible bond issue mentioned earlier?

2. On July 1, 2018 3 years after acquiring the convertible bonds Fuzz converted all the bonds into common stock, when the market price per share of Slug was $32. The book value of Slugs debt at the time of conversion is $6,073,333 while the market value of the issued shares is $7,680,000. Complete Slugs journal entry at conversion assuming it uses the market value approach.