On January 1, 2016, when its $30 par value common stock wasselling for $80 per share, Novak Corp. issued $10,400,000 of 8%convertible debentures due in 20 years. The conversion optionallowed the holder of each $1,000 bond to convert the bond intofive shares of the corporation’s common stock. The debentures wereissued for $11,232,000. The present value of the bond payments atthe time of issuance was $8,840,000, and the corporation believesthe difference between the present value and the amount paid isattributable to the conversion feature. On January 1, 2017, thecorporation’s $30 par value common stock was split 2 for 1, and theconversion rate for the bonds was adjusted accordingly. On January1, 2018, when the corporation’s $15 par value common stock wasselling for $135 per share, holders of 30% of the convertibledebentures exercised their conversion options. The corporation usesthe straight-line method for amortizing any bond discounts orpremiums.

(a) Prepare the entry to record the originalissuance of the convertible debentures. (Credit accounttitles are automatically indented when amount is entered. Do notindent manually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for theamounts.)

Account Titles and Explanation	Debit	Credit

(b) Prepare the entry to record the exercise ofthe conversion option, using the book value method.(Credit account titles are automatically indented whenamount is entered. Do not indent manually. If no entry is required,select "No Entry" for the account titles and enter 0 for theamounts.)

Account Titles and Explanation	Debit	Credit