On January 1, 20X1, Toy inc. issued $500,000 of convertible bonds. The bonds mature on December 31, 20X5. Interest is payable annually at 6.0% on December 31. The bonds are convertible at the investor's option at the rate of 20 common shares for each $1,000 bond. Similar bonds without the conversion option were selling for $475,000 at time of issuance. Transaction costs of $10,000 were incurred.

Required

Prepare the journal entry to record the issuance of the bonds.