Question

On October 1, 2018, XYZ Corporation issued $30 million of 8% nonconvertible bonds at 105. The bonds are due on September 30, 2038. Each $1,000 bond was issued with 30 detachable stock warrants, each of which entitled the bondholder to purchase for $67 one share of XYZ Corporation. The common stock of XYZ Corporation has a par value of $10. On October 1, 2018, the market value of the common stock was $60 per share, the market value of the stock warrant was $10 and the market value of the bonds without the warrant was 99.

On February 15, 2022, when the common stock has a market price of $75 per share, the bondholder exercised the warrants.

Instructions:

1. Prepare the required journal entries on October 1, 2018 and February 15, 2022. Show and label all computations.

Date	Accounts Title and Explanation	Ref.	Debit	Credit

Answer 1

Date	Accounts Title and Explanation	Ref.	Debit	Credit
Oct 1, 2018	Cash		$31,500,000
	Discount on Bonds (Balancing figure)		$5,825,581
	Bonds Payable			$30,000,000
	APIC - Stock Warrants			$7,325,581
	Cash (30000000/1000*30*67)		$60,300,000
	APIC - Stock Warrants		$7,325,581
	Common Stock (30000000/1000*30*10)			$9,000,000
	APIC - Stock Warrants			$58,615,581

Working Notes: