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in this video were going to discuss the accounting for convertible debt a potentially dilutive security convertible bonds can be changed into another corporate security typically common stock during some specified period of time after the convertible debt was issued from the bondholders perspective the benefit of a convertible bond is that we get the guaranteed principal and interest that is if the company doesnt default plus we get the added benefit of being able to exchange it for stock in other words we have an upside something more than the par value of our bonds at maturity think about being a bondholder for tesla theres a lot of downside risk there and as a bondholder you dont share in that tremendous upside potential however if you are a convertible bond holder you get the benefits of being paid first in the event of financial distress and youve got that guaranteed coupon payment at least as long as tesla remains in business but you also have a chance for that tremendous up