1. (Issuance of Bonds with Warrants) Prior Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $150,000.
(a) What entry should be made at the time of the issuance of the bonds and warrants?
(b) If the warrants were non-detachable, would the entries be different? Discuss.