On January 1 2011 when its common shares were selling

#1302
On January 1, 2011, when its common shares were selling for $80 per share, Plato Corp.
issued $10 million of 8% convertible debentures due in 20 years. The conversion option allowed
the holder of each $1,000 bond to convert the bond into five common shares. The debentures
were issued for $10.8 million. The bond payment’s present value at the time of issuance was
$8.5 million and the corporation believes the difference between the present value and the
amount paid is attributable to the conversion feature. On January 1, 2012, the corporation’s
common shares were split 2 for 1, and the conversion rate for the bonds was adjusted
accordingly. On January 1, 2013, when the corporation’s common shares were selling for $135
per share, holders of 30% of the convertible debentures exercised their conversion option. The
corporation applies ASPE, and uses the straight-line method for amortizing any bond discounts
or premiums.Instructions(a) Prepare in general journal form the entry to record the original
issuance of the convertible debentures.(b) Using the book value method, prepare in general
journal form the entry to record the exercise of the conversion option. Show supporting
calculations in good form.(c) How many shares were issued as a result of the conversion?(d)
From the perspective of Plato Corp., what are the advantages and disadvantages of the
conversion of the bonds into common shares?View Solution:
On January 1 2011 when its common shares were selling

ANSWER
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