P16.8 On January 1, 2020, Salem Corp. issued $1.1 million of five-year, zero-interest-bearing notes along with warrants to buy 1 million common shares at $22 per share. On January 1, 2020, Salem had 9.3 million common shares outstanding and the market price was $21 per share. Salem Corp. received $1 million for the notes and warrants. If offered alone, on January 1, 2020, the notes would have been issued to yield 11% to the creditor. Assume that the company follows IFRS.

Instructions

Answer the following questions, rounding all numbers to the nearest dollar.

a. Prepare the journal entry(ies) to record the issuance of the zero-interest-bearing notes and warrants for the cash consideration that was received. Show calculations using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel function PV.

b. Prepare an amortization table for the notes using the effective interest method.

c. Prepare adjusting journal entries for Salem Corp. at the end of its fiscal year of December 31, 2020.

d. Prepare the journal entry required for Salem Corp. if a quarter of the warrants are exercised on January 1, 2023.