Ferguson Memorials Limited issued a \(\$ 1,000,000,5 \%\) annual interest non-convertible bond with detachable stock warrants. One warrant is attached to each \(\$ 1,000\) bond and allows the holder to buy two common shares for \(\$ 28\) each at any time over the next 10 years. The existing market price of Ferguson shares is \(\$ 18\). The bond issue sells for 104.

Required:

1. Assume that, shortly after the bond is issued, bonds alone are selling for 102 and that warrants are selling for \(\$ 32\) each. Record the issuance of the bond.

2. What is the difference between a convertible bond and a bond with detachable warrants?

3. Assume that \(60 \%\) of the warrants are exercised and the remaining \(40 \%\) are allowed to lapse. Provide a journal entry(ies) to record the exercise and lapse.