Issuance of zero-interest-bearing notes and warrants

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Reference no: EM132421149

Problem: On January 1, 2017, Salem Corp. issued $1.1 million of five-year, zero-interest-bearing notes along with war- rants to buy 1 million common shares at $22 per share. On January 1, 2017, Salem had 9.3 million common shares out- standing and the market price was $21 per share. Salem Corp. received $1 million for the notes and warrants. If offered alone, on January 1, 2017, the notes would have been issued to yield 11% to the creditor. Assume that the company follows IFRS.

Instructions

(a) Prepare the journal entry(ies) to record the issuance of the zero-interest-bearing notes and warrants for the cash consideration that was received.

(b) Prepare an amortization table for the notes using the effective interest method.

(c) Prepare adjusting journal entries for Salem Corp. at the end of its fiscal year of December 31, 2017.

(d) Prepare the journal entry required for Salem Corp. if a quarter of the warrants are exercised on January 1, 2020.

Reference no: EM132421149

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