On aug 2 2017, AOC co. singed an agreement with RO ltd to issue$300,000 6% debenture to RO for proceeds of $285,000. the debenture was issued on aug 2 2017. at any time after 2012 the debenture is convertible into common shares at the option of RO, at the rate of the two shares for each 100 bond. the maturity date of this debenture is aug 1 2037. the market interest rate for a regular, non convertible debenture with similar risk factors is 10%. interest is paid on feb 1 and aug 1. AOC uses effective interset method and the gross method to account for the debenture. AOC year year is dec 31.
A. prepare relevelant journal entries for the dates: aug 2 2017, dec 31, 2017 and feb 1, 2018
B on feb 1 2027 after interest is paid, the entire debenture is converted, prepare journal entries for conversion
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