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Prepare the journal entry to record the bond issuance

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Reference no: EM133176081

Question - On January 1 2019, Cirics 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 Cirics' $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. Prepare the journal entry to record the bond issuance.

b. On January 1 2020, all the warrants are exercised. Record the journal entry to exercise the warrants. Assume that Cirics uses the book method to record stock issuances.

c. Assume instead that the warrants expire unused. Record the journal entry for the expiration of the warrants.

Reference no: EM133176081

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