On January 1 2019, ABC Company issued $1,400,000 6% bonds with 14,000 detachable warrants at 115. Interest on the bonds is paid annually on December 31 each year. Each warrant entitled the holder to buy two shares of ABC’ $1 par common stock at $30 per share. Management estimates that the bonds without the warrants would have sold at .92 and that the fair value of each warrant at issuance would be $26 per warrant without the bonds. The market rate of interest for similar bonds is 8%.
a. (6%) Prepare the journal entry to record the bond issuance.
b. (6%) On January 1 2020, all the warrants are exercised. Record the journal entry to exercise the warrants. Assume that ABC uses the book method to record stock issuances.
c. (2%) Assume instead that the warrants expire unused. Record the journal entry for the expiration of the warrants.

Answer rating: 100% (QA)

Answer a Debit Cash 1400000 Credit Bonds Payable 1400000 b Debit Cash 600000 Credit Common Stock 60... View the full answer