On January 1, 2013, Leffler, Inc. sold $200,000 of its convertible bonds at par. Conversion terms allow each $1,000 bond to be converted into 40 common shares. On April 1, 2015, the company increases the conversion terms to 55 shares per bond if conversion takes place within 180 days. The conversion of all of the bonds took place on May 1, 2015. Fair market values of the common stock were as follows: January 1, $20; April 1, $30; and May 1, $25. The bond conversion expense would be recorded at

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The bond conversion expense is calculated based on the increase in the number of shares due to the change in conversion terms. Initially, each bond could be converted into 40 shares, but the terms were increased to 55 shares. The additional 15 shares per bond (15 shares x 200 bonds = 3,000 additional shares) are considered an expense. The fair market value on the date of conversion (May 1) is $25 per share. Therefore, the bond conversion expense is 3,000 shares x $25 = $75,000.