On July 1, 2018,HeadlandLtd.,which follows ASPE,issued a series of $3,200,000face-value convertible bonds due in five years. Each $1,000bond allowed the holder to convert the bond to100common shares. On the day the bonds were issued,Headlandcalculated that the conversion rights were valued at $153,802.

On July 1, 2021, the bonds had a carrying value onHeadland's books of $3,143,400, and the fair market value of the bonds without the convertible option was $3,160,000.

a) Assume all the bondholders voluntarily decided to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.

b) Assume thatHeadlandpaid the bondholders an incentive of $34,400to convert their bonds to common shares, and that all the bondholders agreed to convert their bonds to common shares on July 1, 2021. Prepare the journal entry to record the conversion.