Researchers-R-Us hires a consultant to do some work over a two-year period beginning January 1, 2018. It is expected that the consultant will work about 15 hours per week on the 

Company's project. The consultant is to be paid a contract amount of $75,000 per year. As an additional incentive, on the consultant's starting date of January 1, 2018, the Company issues 20,000 shares of its $2 par value common stock with a trading price on January 1, 2018, of $3.50. Each share of stock has a detachable warrant with an exercise price of $3.50. A fair value calculation for the warrants, using an appropriate fair value model, results in a fair value of $4.20 per warrant. There is a provision in the warrant agreement that requires the Company to make a cash payment to the warrant holder in the amount of $10,000 if the Company fails to make timely filings with the SEC.

After some research, you determine the instrument is not indexed to the Company's own stock.

How do you classify the warrants?  and make the journal entries for 2018 and 2019 related only to the issuance of the stock and warrants.

Answer rating: 100% (QA)

Warrants are a derivative that give the right but not the obligation to buy or sell a securitymost commonly an equityat a certain price before expiration The price at which the underlying security can ... View the full answer