Question: 1. On January 1, 2013, Gent Inc. issued 8% bonds with a face amount of $800,000. The bonds mature in 10 years. Interest is paid semiannually on June 30th and December 31st. The effective interest rate for these bonds was 9%. Wolf incurred $20,000 in debt issues cost.
(a) What was the price of the bonds at issuance?
(b) Prepare the journal entry to record the issuance of the bonds and the debt issue costs on January 1, 2013.
(c) On January 1st, 2014 Wolf decided to repurchase the bonds on the open market. Effective interest in the market at the time of repurchase was 10%. Prepare the journal
entry to record the bond repurchase (disregard the remaining debt issue costs).
(d) On January 1, 2013, Gent Inc. also issued at PAR a series of 8% bonds with a face amount of $800,000. Accompanying each $1,000 were 30 warrants giving their holders the right to purchase a share of Gent Inc. starting January 1, 2014 for 15$. The price of the stock at the time of issuance was 12$ per share.
(i) Prepare the journal entry to record the issuance of the bonds with detachable warrants.
(ii) On January 1, 2014 all the warrants were exercised when the price of the Gent share was 20$ per share. Prepare the journal entry to record the exercise of the option.