ABC industries issued $1,000,000 of 3 year bonds on January 1, 2023. The bonds have a stated rate of 7% and interest is payable annually. The market rate for similar bonds is 5%.

Required

1. What is the amount of cash this bond issuance raised?

2. Write the initial journal entry for the issuance of the bonds?

3. Assume the bonds were issued with 50,000 non-detachable stock warrants (in total) with a strike price of $5 each. In 2025, all 50,000 warrants were exercised when the stock price was $8.50 per share. Write the journal entry to record the exercise of the warrants.

4. Assume the bonds were issued with 50,000 detachable stock warrants with a strike price of $5 each. The market value of the warrants is $1.20 per warrant, the standalone value of the bonds is unknown. Assume the cash raised is the as in part 1. Write the journal entry to show the issuance of the bonds with warrants.

Answer rating: 100% (QA)

1 To calculate the amount of cash raised from the bond issuance we need to consider the face value o... View the full answer