Exercises on Bonds with Equity Characteristics, Convertible Bonds & Debt Restructuring

(EXPLAIN THE SOLUTION)

PROBLEM:

On July 1 , 2018 , Metal Corporation issued P 5,000,000 of it s 10 % , 7 - year bonds with detachable share warrants at 108 . Each P 1,000 bond carried a detachable share warrant for the purchase of 2 shares of P 100 par value ordinary shares at P 140 per share . The market value of the bonds ex-warrants is 102 .

REQUIRED :

( a ) Prepare journal entry to record the issuance of the bonds with detachable warrants .

( b ) Prepare journal entry to record the exercise of warrants , assuming that all of the warrants were subsequently exercised .