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How should debt be recorded when it includes an option for the holder to exchange the debt for common stock in the company?
• The equity portion is valued at the par value of the stock, and the debt portion is valued at the remaining amount of the proceeds received.
• The debt portion is valued at the value of the proceeds received (with a premium or discount, if applicable), and the equity portion is ignored until conversion.
• The debt portion is valued at the present value of future cash payments, and the equity portion is valued at the remaining amount of the proceeds received.
• The equity portion is valued at the value of the proceeds received (split into stock and paid-in capital), and the debt portion is ignored until conversion.
• The equity portion is valued at the present value of future dividend payments, and the debt portion is valued at the preset value of future interest payments.

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