On January 1, the company issued $2.5 million of six-year, zero-interest-bearing notes along with warrants to buy 1.25 million common shares for $10 per share. The company received $1.9 million for the notes and warrants. If offered alone, the notes would have been issued to yield 9% to the creditor. The warrants are valued at $550,000 with an option pricing model.

Prepare the journal entries and discusses the recognition, measurement, and presentation of the financial instruments issued.