Bonds with Detachable Warrants
Response to the following problem:
On January 1, 2010, the London Corporation issued $500,000 of 11.5% bonds due January 1, 2020, at 102. The bonds pay interest semiannually on June 30 and December 31. Each $1,000 bond carried 20 warrants, and the exchange of two warrants allowed the holder to acquire one share of $10 par common stock for $50. Shortly after the time of issue, the bonds were quoted at 98 ex rights and each individual warrant was quoted at $5. Subsequently, on March 31, 2010, 8,000 rights were exercised.
Required
1. Prepare the journal entry to record the bond issue.
2. Prepare the journal entries on March 31, 2010 to record the exchange of the warrants for common shares.