Like the rest of the airline industry, American Airlines was dealt a cruel blow in 2020 by the COVID-19 pandemic. Struggling to cope with plummeting demand for air travel and the resulting financial impact, American took advantage of a provision in the CARES Act to avail itself of funds provided by the Payroll Support Program. The following disclosure note appeared in the company’s second quarter 2020 quarterly report:

The fair value of the warrants was estimated at $0.1 billion.

Required:

1. Re-create the journal entry that American used to record the $1.8 billion loan with PSP warrants and receipt of the funds.

2. By how much, if any, did American’s shareholders’ equity increase at the time of the loan?

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1. Basis of Presentation and Recent Accounting Pronouncement (in part) (b) Impact of Coronavirus (COVID-19) Payroll Support Program Agreement In connection with the Payroll Support Program, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the continuation of payment of employee wages, salaries and benefits... Pursuant to the PSP Agreement, Treasury is to provide us financial assistance to be paid in installments... As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, we expect to issue a total aggregate principal amount of approximately $1.7 billion under the PSP Promissory Note and issue warrants (each a PSP Warrant and, collectively, the PSP Warrants) to Treasury to purchase up to an aggregate of approximately 13.7 million shares of AAG common stock. ... The PSP Promissory Note will be recorded as unsecured long-term debt, and the total fair value of the PSP Warrants, estimated using a Black-Scholes option pricing model, will be recorded in stockholders' equity in the condensed consolidated balance sheet.