On September 1, 2023, Oxford Corp. sold at 102 (plus accrued interest) 5,200 of its $1,000 face value, 10-year, 9% non-convertible bonds with detachable stock warrants. Each bond carried two detachable warrants; each warrant was for one common share at a specified option price of $10 per share. Shortly after issuance, the warrants were selling for $5 each. Assume that no fair value is available for the bonds. Interest is payable on December 1 and June 1. Oxford prepares its financial statements in accordance with ASPE.

Instructions

a. Prepare in general journal format the entry to record the issuance of the bonds under both options available under ASPE.

b. From the perspective of a creditor, discuss the effect of each option on Oxford’s debt to total assets ratio. (AICPA adapted)