MagTech Inc. requires funding to build a new factory and has decided to raise the additional capital by issuing $850,000 of bonds with a rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 5 warrants for each $1,000 bond sold. The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000.
Instructions
(a) What entry should be made at the time of the issuance of the bonds and warrants?
(b) If the warrants were non-detachable, would the entries be different? Discuss.
