On January 1, Costko Corporation issued $120,000 of 6%, 5-year nonconvertible bonds with nondetachable stock purchase warrants. Each $1,000 bond carried 10 warrants, each of which was for one share of Costko common stock, par value $1, at a specified option price of $40 per share. The bonds (including the warrants) sold at 102. No bond price without warrants was available. Required a. Provide the entry at the date of issuance of the bonds. b. Provide the entry at the date of issuance of the bonds assuming instead that the warrants are detachable. Immediately after the date of issuance, the detachable stock purchase warrants were selling at $5 each. Ref. a. b. Cash Account Premium on Bonds Payable Bonds Payable To record issuance of bonds with nondetachable warrants Cash Paid-in Capital-Stock Warrants Bonds Payable Premium on Bonds Payable To record issuance of bonds with detachable warrants V V V Dr. 122,400 0 0 122,400 6,000 0 0 Cr. 0✓ 2,400✔ 120,000 ✓ 0✔ 0x 120,000✔ 0x

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.