On January 1, 20X1, Metro Plaza Inc. (MPI), a real estate company, using IFRS, issued $1,000,000, 8%, five year bonds for a cash price of $1,250,000. Interest is payable semi-annually on June 30 and December 31. Each $100 bond includes 20 warrants. Each warrant can be exchanged for one common share of MPI at an exercise price of $10 per share. The market rate of interest is 6% for similar bonds without warrants and the fair market value of these bonds was determined to be $1,085,302.

Required:

1. Prepare the appropriate journal entry to record the issue of the bonds on January 1, 20X1;
2. Prepare the appropriate journal entry required on December 31, 20X1;
3. How would the bonds be reported on the balance sheet at December 31, 20X1;
4. 30% of the warrants were exercised on July 1, 20X3 when the shares of MPI were being traded at $11,50. Prepare the appropriate journal entry or entries which the company should make on July 1, 20X3 to record this transaction.

Note: You may find it useful to answer this question by preparing a bond amortization table.