On August 1, 2021, Limbaugh Communications issued $35 million of 10% nonconvertible bonds at 102. The bonds are due on July 31, 2041. 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, 2021, the market value of the common stock was $58 per share and the market value of each warrant was $6. In February 2032, when Limbaugh's common stock had a market price of $70 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, 2021, 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 2032, to record the exercise of the warrants.
On August 1, 2021, Limbaugh Communications issued $35 million of 10% nonconvertible bonds at 102. The bonds are due on July 31, 2041. 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, 2021, the market value of the common stock was $58 per share and the market value of each warrant was $6. In February 2032, when Limbaugh's common stock had a market price of $70 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, 2021, 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 2032, to record the exercise of the warrants.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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| Particulars | 2 units | 4 units | 8 units |
| Direct Material @ $88000 per unit | $176000 | $352000 | $704000 |
| Direct Manufacturing labor @ $25 per labor hour | $131750 = (5270 × $25) | $224000 = (8960 × $25) | $380800 = (15232 × $25) |
| Variable |
$79050 = (5270 × $15) | $134400 = (8960 × $15) | $228,480 = (15232 × $15) |
| Total Variable Cost of Production | $315655 | $710400 | $1313280 |
![Exercise 14-28 (Algo) Bonds with detachable warrants (LO14-5]
On August 1, 2021, Limbaugh Communications issued $35 million of 10 % nonconvertible bonds at 102. The bonds are due on July 31,
2041. 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,
2021, the market value of the common stock was $58 per share and the market value of each warrant was $6.
in February 2032, when Limbaugh's common stock had a market price of $70 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, 2021, 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 2032, to record the exercise of the warrants.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd61f469-4031-4a8b-8ef3-eba7db0216fa%2F19c0c987-ffb2-4b09-8d9b-689f0fac4a03%2Ft1f3epd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 14-28 (Algo) Bonds with detachable warrants (LO14-5]
On August 1, 2021, Limbaugh Communications issued $35 million of 10 % nonconvertible bonds at 102. The bonds are due on July 31,
2041. 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,
2021, the market value of the common stock was $58 per share and the market value of each warrant was $6.
in February 2032, when Limbaugh's common stock had a market price of $70 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, 2021, 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 2032, to record the exercise of the warrants.
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