Problem One:

• On January 1, 2016, A company issued 100,000 cumulative preferred shares with a stated dividend of $3.00 and received proceeds of $8,500,000. Buyers of the preferred shares also received a detachable warrant with each share purchased. Each warrant gives the holder the right to buy one common share at $20 per share within 10 years.
• The preferred shares alone, excluding the conversion rights, are trading for $79 per share. The estimated value of the detachable warrants was $9 each.

Required:

1. Allocate the equity to each component and record the journal entry for the issuance of these shares and warrants using the incremental method
2. Assume 15,000 of the warrants are exercised on January 1, 2020