On August 1, 2016, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31, 2036. 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, 2016, the market value of the common stock was $58 per share and the market value of each warrant was $8. In February 2027, 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 journal entries on August 1, 2016, to record (a) the issuance of the bonds by Limbaugh and (b) the investment by Interstate. 2. Prepare the journal entries for both Limbaugh and Interstate in February 2027, to record the exercise of the warrants.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 21E: On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be...
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On August 1, 2016, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31, 2036. 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, 2016, the market value of the common stock was $58 per share and the market value of each warrant was $8. In February 2027, 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 journal entries on August 1, 2016, to record (a) the issuance of the bonds by Limbaugh and (b) the investment by Interstate. 2. Prepare the journal entries for both Limbaugh and Interstate in February 2027, to record the exercise of the warrants.

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