Concept explainers
Bonds with detachable warrants
• LO14–5
On August 1, 2018, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31, 2038. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $60, one share of Limbaugh Communications’ no par common stock. Interstate Containers purchased 20% of the bond issue. On August 1, 2018, the market value of the common stock was $58 per share and the market value of each warrant was $8.
In February 2029, when Limbaugh’s common stock had a market price of $72 per share and the unamortized discount balance was $1 million, Interstate Containers exercised the warrants it held.
Required:
1. Prepare the
2. Prepare the journal entries for both Limbaugh and Interstate in February 2029, to record the exercise of the warrants.
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Chapter 14 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
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