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On August 1, 2018, Limbaugh Communications issued $22 million of 11% nonconvertible bonds at 105. The...

On August 1, 2018, Limbaugh Communications issued $22 million of 11% nonconvertible bonds at 105. The bonds are due on July 31, 2038. Each $1,000 bond was issued with 40 detachable stock warrants, each of which entitled the bondholder to purchase, for $50, one share of Limbaugh Communications’ no par common stock. Interstate Containers purchased 20% of the bond issue. On August 1, 2018, the market value of the common stock was $48 per share and the market value of each warrant was $10. In February 2029, when Limbaugh’s common stock had a market price of $62 per share and the unamortized discount balance was $2 million, Interstate Containers exercised the warrants it held. Required: 1. Prepare the journal entries on August 1, 2018, 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 2029, to record the exercise of the warrants.

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Date Account Titles and Explanation Debit Credit
1. a Aug-01 Cash ($22Million*105%) 23100000
Discount on Bond Payable 3300000
     Bond Payable (Face Value) 22000000
     Equity Stock Warrant ($22Million/$1,000*40Warrants* $10) 4400000
(To record issuance of bond)
1. b Aug-01 Investment in Stock warrants ($4.4Million*20%) 880000
Investment in Bods ($22Million*20%) 4400000
     Discount on Bonds (Plug in) 660000
     Cash ($22Million*105%*20%) 4620000
(To record invetment in bonds and warrants)
2 Limbaugh - Issuer
Feb-29 Cash (22,000 Bonds*40 Warrants*$50)*20% 8800000
Equity Stock Warrants ($4.4Million*20%) 880000
     Common Stock (Plug in) 9680000
(To record warrant exercise)
Interstate-Investor
Feb-29 Investment in Common Stock 9680000
Investment in Stock warrants ($4.4Million*20%) 880000
     Cash (22,000 Bonds*40 Warrants*$50)*20% 8800000
(To record warrant exercise)

ekkarill92 answered 5 months ago
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