Question

On April 1, 2018, Windel Corporation issued bonds with detachable warrants.

Information related to these bonds is shown below:

Face value of bonds $325,000

Stated rate of interest 8%

Bonds issued at 106%

Each $1,000 bond was sold with 20 detachable warrants

Each warrant allowed the investor to purchase one share of common stock for $16

The par value of the common stock is $4.00

On April 1, 2018 the market values were:

Common stock $12

Warrants $7

In February 2023, some of the warrants were exercised. The percentage of warrants exercised was 20%

Bond #2: On January 1, 2016, Windel sold the following bonds:

Maturity value $850,000

Stated rate of interest 9%

Effective rate of interest 8%

Interest is paid each December 31

Maturity date January 1, 2021

On December 31, 2018, Windel redeemed (called) some of the bonds:

Call premium 105%

Percentage of bonds redeemed 40%

Required:

a. With respect to Bond #1:

1. Prepare the journal entry to record the exercise of the warrants.

Answer 1

For the recording of exercise of detachable warrants:
Date	Accounts Titles	Debit $	Credit $
Feb-23	Detachable Warrants(104000*20%)	$        20,800
	Common Stock (1,300 Shares * $4)		$          5,200
	Paid in capital in excess of par		$        15,600
	(To record exercise of 20% of warrants)