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On August 1, year 1, Perfect Communications issued S35 million of 12% nonconvertible bonds at 105. The bonds are due on July 31, year 20. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $58, one share of Perfect Communications, no par common stock. International Containers purchased 25% of the bond issue. On August 1, year 1, the market value of the common stock was $56 per share and the market value of each warrant was S9 In February year 12, when Perfects common stock had a market price of $74 per share and the unamortized discount balance was $1.2 million, International Containers exercised the warrants it held. Required: Prepare the journal entries on August 1, year 1, to record (a) the issuance of the bonds by Perfect and (b) the investment by International Prepare the journal entries for both Perfect and International in February year 12, to record the exercise of the warrants.
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