DLC Company, a technology startup, is undergoing a new round of financing and seeks to entice bondholders by offering multiple types of debt. One set of bonds has detachable warrants. At the beginning of the current fiscal year, DLC issued $5,000,000 of 10% bonds for $5,210,000. Each $1,000 bond had 20 detachable warrants, and each of these warrants was redeemable for one share of DLC $1 par value stock at a price of $25. The fair value of a warrant was $10.
Required:
a. Determine the value to be assigned to the bonds and the warrants and prepare the journal entry to record the issuance of the convertible bonds.
b. Assume that 4,000 warrants are subsequently exercised. Prepare the journal entry for the issuance of the common stock.
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DLC Company, a technology startup, is undergoing a new round of financing and seeks to entice bondho...
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