In this section, you are given FOUR Multiple Choice Questions on Bonds and Warrants.

USE THE INFORMATION GIVEN BELOW TO ANSWER QUESTIONS 27-30. You may find it useful and easier to answer this question by first preparing a Bond Amortization Table.

On January 1, 2018, the Mumbai Hotels, Inc., [MH], issued $1,500,000, 8% , five-year convertible bonds for a cash price of $1,875,000. Interest accrues semi-annually and is payable on June 30 and December 31. The $1,000 face value bonds were issued with each including 20 warrants. The warrants were exchangeable, each for one common share of MH at an exercise price of $12 per share and the value of the conversion rights was estimated at $142,050. The market rate of interest is 6% for similar bonds and similar warrants were being traded at $3.50 each. Each bond could be converted into 90 shares.

You are required to select the alphabet of the one best answer to each of the questions listed below and input it in the computer.

[27] The appropriate journal entry to record the issue of the bonds on January 1, 2018 would be

a.Cash DR ....$1,875,000; Bonds Payable CR....$1,770,000; Contributed Surplus - Warrants CR....$105,000.

b.Cash DR ....$1,875,000; Bonds Payable CR....$1,627,950; Contributed Surplus - Warrants CR....$105,000; Contributed Surplus - Conversion CR....$142,050.

c.Cash DR ....$1,875,000; Bonds Payable CR....$1,732,950; Contributed Surplus - Conversion CR....$142,050.

d.

Cash DR ....$1,875,000; Bonds Payable CR....$1,875,000.

e.

None of the above entries.

[28] How would the bonds be reported on the balance sheet, December 31, 2019?

a.[Long term Liability] Bonds Payable $60,000.

b.[Current Liability] Interest Payable $48,504; [Long term Liability] Bonds Payable $60,000

c.[Long term Liability] Bonds Payable $1,627,950.

d.

[Current Liability] Bonds Payable $24,038; [Long term Liability] Bonds Payable $1,581,255.

e.

None of the above.

29] Assume 40% of the warrants were exercised on July 1, 2019 when the shares of MH were being traded at $13.75. The appropriate journal entry which the company should make on July 1 to record this transaction would be

a.Cash DR....$144,000; Contributed Surplus - Warrants DR....$42,000; Bonds Payable CR....$186,000.

b.Cash DR....$165,000; Contributed Surplus - Warrants DR....$42,000; Gain on Warrants CR....$42,000; .Bonds Payable CR....$165,000.

c.Cash DR....$144,000; Contributed Surplus - Warrants DR....$42,000; Loss on Warrants DR....$21,000; .Bonds Payable CR....$207,000.

d.

Cash DR....$144,000; Contributed Surplus - Warrants DR....$42,000; Common Shares CR....$186,000.

e.

None of the above

[30] Assume 40% of the bonds were converted on January 1, 2019 when the shares of MH were being traded at $14.00. The appropriate journal entry which the company should make on January 1 to record this transaction would be

a.Bonds Payable DR....$600,000; Contributed Surplus - Conversion DR....$56,820; Common Shares CR....$648,000; Gain on Conversion CR ....$8,820.

b.Bonds Payable DR....$600,000; Contributed Surplus - Conversion DR....$48,000; Common Shares CR....$648,000.

c.Bonds Payable DR....$642,117; Contributed Surplus - Conversion DR....$56,820; Loss on Conversion DR....$57,063; Common Shares CR....$756,000.

d.

Bonds Payable DR....$642,117; Contributed Surplus - Conversion DR....$56,820; Common Shares CR....$698,937.

e.

None of the above.