At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of ₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and December 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000 bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value of the share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of the issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the rest expired. Prepare journal entries for 2021.
At the beginning of the year, COMET Company decided to raise additional capital by issuing 8,000 of
₱1,000 face amount 5-year bonds with interest rate of 12% payable semi-annually on June 30 and
December 31. To help the sale of the bonds, share warrants are issued – one warrant for each ₱1,000
bond sold. The warrant entitles the holder to purchase five shares at ₱85 per share. The par value of
the share is ₱50. It is reliably determined that the value of the warrants is ₱25 each at the time of the
issuance of the bonds. The bonds are sold at 110 with warrants. The market rate of interest for similar
bonds without the warrants is 14%. On December 1, 2021, half of the warrants are exercised and the
rest expired.
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