On April 1, 2020, Dalton Ltd. issued a $3,000,000, 25-year, 6% bond at 99. The bond was issued with a detachable stock warrant that entitles the purchaser the right to buy 20,000 shares in Dalton at $18 per share. Similar bonds trading on the market without the detachable stock warrant carry an interest rate of 7%. Interest on the bond is paid semi-annually on April and October 1st each year, beginning in October 1, 2020. . Dalton uses the effective interest method of amortizing discounts or premiums.  

REQUIRED:

1. Assume that the separate fair value of the warrants could not be determined. Prepare the journal entry to record the bond issuance using the residual value (incremental) method. Show all calculations.
2. Prepare the journal entry for the first interest payment on October 1, 2020.
3. Prepare the adjusting journal entry to accrue the interest on December 31, 2020.
4. Prepare the entry on Dalton’s books assuming that 60% of the warrants were exercised on October 1, 2021 and the remaining warrants were outstanding.
5. Prepare the entry on Dalton’s books assuming the remaining warrants expiry.