Hardware Corporation issued $75,000 of 6 percent, 10-year, nonconvertible bonds with detachable stock purchase warrants. Each $1,000 bond carried 20 detachable warrants, each of which was for one share of Hardware common stock, par $20, at a specified option price of $60. The bonds sold at $102 including the warrants (no bond price ex-warrants was available), and immediately after date of issuance the detachable stock purchase warrants were selling at $4 each. The entire issue was acquired by Software Company as a long-term investment with the intent to hold to maturity. All indicated transactions occurred in the same fiscal year.
Required:
1. Give entries for both the issuer and the investor at date of acquisition of' the bonds.
2. Give the entry for the investor assuming a subsequent sale of all of the warrants to another investor at $5.50 each.
3. Disregard (2). Give the entries for the issuer and the investor assuming subsequent tender of all of the warrants by the investor for exercise at the specified option price. At this date, the stock was selling at $75 per share.