On July $2,$ Year $1,$ McGraw Corporation issued $$500,000$ of convertible bonds. Each $$1,000$ bond could be converted into $20$ shares of the company$$s $$5$ par value stock. On July $3,$ Year $3,$ when the bonds had an unamortized discount of $$7,400$ and the market value of the McGraw shares was $$52$ per share, all the bonds were converted into common stock.

Required:

$1.$ Prepare the journal entry to record the conversion of the bonds under $($a$)$ the book value method and $($b$)$ the market value method.

$2.$ Compute the company$$s debt$-$to$-$equity ratio $($total liabilities divided by total shareholders$$ equity$)$ under each alternative. Assume the company$$s other liabilities are $$2$ million and shareholders$$ equity before the conversion is $$3$ million.